What is an Operating Rental?
A cost effective way of having the use of an asset without having to outlay the full purchase price upfront. This allows you to retain cash for working capital needs.
Why an Operating Rental.
Allows you the means to structure a payment plan to suit the company’s cash flow requirements.
Avoid time consuming administration such as fixed asset register and depreciation schedules.
Keep long term borrowings down - rentals are reflected as an operating expense on the Income Statement and not the Balance Sheet.
VAT is claimed back on the monthly rentals.
Benefits of Operating a Rental
Rentals are 100% tax deductible as an operating expense therefore minimizing income tax obligations.
VAT is not capitalized upfront but rather paid monthly with each rental.
VAT on the rental is regarded as input VAT and may be claimed against any output VAT collected.
No deposit is required, thus reducing your initial capital outlay.
You will not be draining your credit facility with your bank
Rentals may be shown as an operating expense and is not reflected on your balance sheet.
Monthly rentals can be reduced by use of escalation options, therefore easing the immediate cash flow