What is a finance lease?

A finance lease is a type of commercial lease in which the legal owner of the asset — in this case, a tractor — rents the asset to the user of the tractor for an agreed-upon period. When a lessee enters into this agreement, they have full operating control of the asset. They will have responsibility and assume the risks and rewards that come with owning the asset. For accounting purposes, the lease gives the lessee the same economic characteristics as if they had full ownership of the tractor. The lessee will record the asset as a fixed asset on their balance sheet. In this situation, the lessee will record the interest of the lease payment as an expense. The lesser charges rent in exchange for lending the asset. The lessor retains ownership of the asset but the lessee gains exclusive use of the asset (providing they abide by the terms of the lease). The lessee is obliged to make rental payments that cover the original cost of the asset. There is an obligation to pay all of the fixed rental amounts, sometimes including a percentage of the purchase price of the vehicle at the end of the contract.

What is an operating lease?

An operating lease in contrast is the simplest form of equipment leasing, where the customer doesn't take on the risks and rewards that come with owning the asset (such as maintenance costs). An operating lease or contract hire is a way of renting an asset for your business over a short or medium time frame without taking on any risk. With an operating lease, you can get a tractor hire over a fixed term, with lower monthly payments and without the commitment of ownership.

Finance for VAT or tax bills

If an overdraft doesn’t cover it, you could look at releasing the capital locked in your business. Any high-value assets you own could be sold and leased back to you, ensuring instant cash without having to do without the asset.

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Table of contents

How do I finance a tax or VAT bill?
Tax and VAT finance options
Quarterly VAT
Corporation tax
Payroll
Quarterly rent
Other unforeseen bills
January and the New Year

How do I finance a tax or VAT bill?

January and April are both times when a lot of your business bills become due as a business owner, and the taxman is coming down hard on firms who owe money to HMRC. It’s the businesses that aren’t aware of their options that are suffering the most, but all is not lost if your business finds itself late paying tax. Read on to find out how you can finance a tax or VAT bill.

Tax and VAT finance options

It's a familiar feeling for business owners all over the country: you discover a tax bill is due and realise you don't have enough working capital set aside to pay for it. But there are lots of ways you can fund a tax bill and cope with HMRC arrears — and using a tax bill loan is an increasingly common way to stay safe and be prepared for the next set of payments.

Don't delay, just pay

HMRC has escalated business winding-up orders and liquidations, and we always remind businesses of the dangers of putting off paying a tax bill. Given the inconsistent nature of the way tax is chased, we frequently see businesses waiting until reminder letters are sent, but it's wise to have a plan in place long before any contact is made by HMRC — for example, a business overdraft alternative that can be dipped into in times of need.

One of the main reasons is that lenders may refuse to lend to you with an outstanding tax bill — which means the situation can quickly spiral out of control. It can be very risky playing chicken with HMRC, and the result could be more than just a slap on the wrist. It might be a threat to the existence of the business itself.

Finance for HMRC tax bills

We all know paying off tax bills takes a huge chunk out of your coffers, and it's never something business owners look forward to. However, it's important to be able to comfortably manage these payments year-on-year (or quarter-on-quarter), whilst maintaining a comfortable level of working capital so you can keep your business ticking over.

There's a huge assortment of tax finance options that have been created to help you maintain healthy levels of cash flow at all times. Although all good business owners are aware of their duty to HMRC, sometimes it’s difficult to predict when you’ll have a shortfall. Here are some of the situations you might want to finance:

Quarterly VAT

If you're preparing for your quarterly VAT return and owe VAT to HMRC, it’s an important obligation of the business. Plan ahead to ensure there is sufficient cash in the business if you owe such VAT payments. If things didn't go to plan, don't worry — VAT financing is a dependable source of cash.