Finance Lease is ideal for individuals or businesses that want to have all the benefits normally associated with owning a vehicle whilst maximizing tax efficiencies and minimizing the initial outlay. You tend to pay a relatively small initial rental (or deposit), normally 3 monthly rentals or repayments in advance, followed by the remainder of the rentals or repayments over the term, with a choice of up to 5 year terms available. Importantly, you should note that for income tax purposes finance lease is still classed as a hire agreement, which means that you get 100% tax relief on your payments to offset against your taxable profits.

With Finance Lease you pay VAT monthly and, if VAT registered, claim it back quarterly. You simply have to agree a monthly payment and contract period, which can include an acceptable final payment, often called a "Balloon" or "Terminal Rental".

Payments are made monthly by straight withdrawal right through the agreement term. You can terminate the agreement early, although there are of course early settlement charges but they are not as harsh as they tend to be on contract hire. 100% of the monthly repayments are offset against taxable profits for the full term of the agreement.

At the end of the term, you are legally obliged to sell the vehicle, as the taxman will not allow you the tax advantages of the lease as well as ownership of the vehicle at the end of the agreement. Finance Lease is flexible and at the end of the contract you have several options. You can sell the vehicle to a third party, and use the sale proceeds to make the final balloon payment (if one has been included). Any sale proceeds over and above the balloon are profit, which is shown on your books, and is therefore taxable.

Most people, however, choose to part exchange the vehicle and take delivery of a new one because you can retain 95% of the part exchange value. This allows you to use any surplus funds as your deposit on the new vehicle. If you choose to part exchange your old van for a new van, which you can do at any time in the agreement, the supplier of the new van will request the settlement figure from your current finance company.

Should the settlement figure be less than the market value of the part exchange, the difference can then be used as part or all of the deposit on the new van, whilst if the settlement is more than the market value of the part exchange, the difference can be added to the new finance agreement, but the deposit will then need to be paid in full. The new finance figures are calculated dependent upon the settlement figure, and the new supplier would then pay the finance company the 5% of the sale proceeds of the part exchange vehicle to close the previous agreement.

Should you decide you want to keep your old vehicle after the term of the agreement has finished, you will need to pay an annual nominal sum, called a Secondary Rental or 'peppercorn rental', to the leasing company (this payment is 100% allowable against taxable profit). This allows you to keep the vehicle for up to a further 2 years. This figure would normally be in line with whatever the monthly figure was during your finance agreement, but would only be paid once a year instead of once a month.