Based in the North East of England, One Sign & Digital operate from a 10,000 sq ft factory with a large fabrication and graphics facility including state-of-the-art digital printing machines to suit every requirement of sign making. This allows the company to manufacture all jobs in-house, giving them full control over projects from start to finish.
Requirements
One Sign & Digital were looking for a way that they could maintain cashflow within the business whilst making their facilities more sustainable and lower their carbon footprint. With such a large facility, they could see the benefits in installing more renewable technologies such as solar panels to help reduce their energy bills.
“We knew our business would be impacted by the increase in energy over the past few months and began looking for solutions that would both support us financially, but also allow us to implement more sustainable changes for the long-term. With the help of Bluestone and AR Power, we could do both. We are now benefitting from reduced energy bills, a solar powered facility and still have capital within the business to continue on our growth trajectory.”
Chris Timmins, Managing Director at One Sign & Digital
The Solution
Bluestone worked with AR power to support the business by offering a £59,512 finance lease facility that would allow One Sign & Digital to install a number of solar panels to the roof of their facility.
The lease will be repaid through fixed repayments over a period of time and provided the business with the capital they needed to implement more sustainable business decisions whilst retaining cashflow for investment in other areas.
“It was great to work with the team at One Sign & Digital and provide them with a solution that has enabled them to continue with their ongoing business strategy whilst also implementing technologies that will support them financially longer-term. I look forward to seeing them continue to grow.”
Toni McLeod, Bluestone leasing
Interested in finance for your business?
We can help businesses to by obtaining the best funding options and facilities, quickly and efficiently, whilst ensuring your short-term goals and long-term ambitions are considered in your financial strategy.
If you are interested in a loan or asset finance for your business, get in touch with us today. We will assess your business’ individual circumstances and work with you to decide which, if any, finance solution would be the right choice.
Grafik develop sustainable, functional and commercially viable projects, working with a range of clients in the residential, commercial, leisure, mixed use and public sectors. Formed in 2001, they work strategically across the UK from their offices in Essex.
Their range of architectural services include; conceptual design, feasibility studies, master planning & urban design, full planning services, working drawing package and value engineering as well as having broad knowledge and experience of softwares including AutoCAD, Revit, Sketchup, Photoshop and InDesign.
Grafik’s need for finance
Grafik were looking for a way to pay their VAT over a period of time so they could retain capital within the business to invest in their continued growth. A VAT loan would ensure that HMRC were paid in full and on time whilst preventing them from parting with a large chunk of cash upfront.
“It was great working with Bluestone to fund our VAT bill – they have been helpful and supportive to our requirements. The process has been easy and it’s one less thing for the business to have to worry about.”
Miranda Jules, Admin Director, Grafik
The Solution
After being introduced to finance specialists at Bluestone Leasing, Grafik made the decision to utilise finance in the form of VAT loan over a three month period. The loan will allow them to spread the cost of their repayments over time and retain cashflow in the business for use in other areas.
Kate Walker, Regional Account Manager at Bluestone, said, “It was an absolute pleasure working with Miranda and the team at Grafik. We were delighted to support them with a VAT loan to spread the cost of their repayments and continue with their growth plans.”
Interested in finance for your business?
We can help businesses to by obtaining the best funding options and facilities, quickly and efficiently, whilst ensuring your short-term goals and long-term ambitions are considered in your financial strategy.
If you are interested in a loan or asset finance for your business, get in touch with us today. We will assess your business’ individual circumstances and work with you to decide which, if any, finance solution would be the right choice.
Kim, a make-up artist to celebrity clients with over 10 years of experience, founded West Barn Co. with her mother, Donna, in 2017. At the time, there was a trend for either tattooed eyebrows or pencil drawn eyebrows and Kim wanted a different look and feel to what was the norm. As such, ‘Soap Brows’ was born.
Using cosmetically formulated soap which is safe to leave on the face, Soap Brows creates fluffy, prominent eyebrows. The product took social media by storm and demand sky rocketed. Today, the company focuses on creating high quality brow and skin prep products including cleansers, serums, prep mists and toners along with makeup tool kits.
West Barn Co.’s Continued Growth
The company signed a building lease for WBCo. headquarters in December 2018, but the business has continued to grow at an incredible pace. West Barn Co. now employ over 25 staff members in their Durham HQ and ships to more than 60 countries. This growth led to a need for a bigger and better headquarters in 2021.
Louise and the team at Bluestone Leasing were really great. They were thorough, efficient and super lovely to work with. The options they presented us with meant we were able to further invest into New Product Development much sooner. When speed to market is imperative, this was a great step in our business. Thanks again Louise.”
Kimberley Cattin, CEO, West Barn Co.
The Solution
After being introduced to commercial finance specialists for the interiors sector, Bluestone Leasing, by their team of fitout specialists, West Barn Co. decided to finance their fitout over 5 years to run in tandem with their 10-year building lease which has a 5-year break clause.
Louise Harris, Key Account Manager at Bluestone said, “It was an absolute pleasure working with Kim and the team at West Barn Co. We were delighted to support them with their large-scale fit-out project, allowing them to continue with their exciting growth plans and we look forward to supporting WBC in years to come.”
Interested in finance for your business?
We can help businesses to by obtaining the best funding options and facilities, quickly and efficiently, whilst ensuring your short-term goals and long-term ambitions are considered in your financial strategy.
If you are interested in a loan or asset finance for your business, get in touch with us today. We will assess your business’ individual circumstances and work with you to decide which, if any, finance solution would be the right choice.
With the 31st January 2023 self-assessment deadline approaching, we have revisited our blog on the key benefits and features of a self-assessment loan and how this can support your business.
In January and July each year, the Self Assessment fee can be a significant outgoing for sole traders and partnerships. This often has a negative impact on cashflow for many businesses, inhibiting their operation and delaying their growth.
What many do not realise, however, is that this doesn’t have to be the case.
With a Self Assessment loan, you could spread the cost of your tax bill over time enabling you to retain capital in your business while making manageable monthly repayments in line with your budget. Read on to discover more about Self Assessment loans.
What is Self Assessment?
Self Assessment is the process by which you advise HM Revenue & Customs (HMRC) of your income, gains and relevant expenses for a tax year. You currently do this by completing a tax return, sending it to HMRC and calculating your own tax liability (the online return will do the calculation for you automatically).
You must send a tax return if, in the last tax year (6 April to 5 April), you were:
self-employed as a ‘sole trader’ and earned more than £1,000 (before taking off anything you can claim tax relief on).
a partner in a business partnership.
The government’s online system will calculate how much tax you owe based on your earnings, and this amount needs to be paid by a specific deadline to avoid additional penalties.
What are the payment dates for tax returns?
A UK tax year runs from 6th April to the following 5th April. For example, if we are talking about the tax year 2022/2023, it started on 6th April 2022 and will finish on 5th April 2023. Generally, the payments need to be made in January and July each year.
31st January (during the tax year): The first payment on account for the tax year ending the following 5 April is due, e.g., the first payment on account for the 2022/23 tax year is due by 31st January 2023.
31st July: The second payment on account for the tax year ending the previous 5 April is due, e.g., the second payment on account for the 2022/23 tax year is due by 31 July 2023.
NOTE: Depending on your circumstances, there may be other relevant dates and deadlines during the year to be aware of. Visit the government website for more information.
What is a Self Assessment loan?
A Self Assessment loan provides the cash you need to pay your fee by the relevant deadline. You then make repayments on the loan over 6, 10, or 12 months so you can align the repayments with income and manage finances more effectively. The capital retained can be used to operate and/or invest in the business.
Income and other outgoings are normally budgeted monthly so spreading the cost of self-assessment can help cashflow, align the outgoing with income and enable you to manage finances more effectively. The capital that you retain can be used to grow the business.
For LLP members or Partners who are taxed individually on their share of the firm’s profits, a self-assessment loan can be taken out by the firm to spread the cost, aligning it with other business outgoings and income.
How do Self Assessment loans work?
Your partners complete their self-assessment and you collate the combined amount due to HMRC.
You can then submit that amount to us and we will source the most competitive finance option for you to allow you to spread the cost.
We’ll secure an agreement to finance from one of our specialist funders who will pay HMRC direct.
The payments will then be made by the firm to the funder over time to settle the balance.
The capital retained within the business can then be utilised for other means to help grow the business.
The funder will need an HMRC statement confirming all outstanding tax liabilities at least 7 days prior to the due date to ensure payments are made to HMRC on time.
In some cases, even if you have already made the payment to HMRC, we may be able to secure finance for you retrospectively if you contact us within 14 days of making the payment.
A financial illustration
Based on a £50k Self Assessment Loan (this is for illustrative purposes only, as individual circumstances differ).
12 monthly repayments of £4,492.20pcm = Total repayable: £53,906.40
6 monthly repayments of £8,760.43pcm = Total repayable: £52,562.58
Interested in a Self Assessment loan for your business?
If you are interested in spreading the cost of your next self-assessment tax bill over time to retain capital and enable you to manage your budget more effectively, get in touch with us today.
We will assess your business’ individual circumstances and work with you to decide if a Self Assessment loan or another finance solution would be the right choice.
We know the level of economic uncertainty the UK is facing right now can be daunting for many UK businesses.
The last couple of years have seen many changes to the commercial finance market. With multiple announcements about interest rate rises, energy bills soaring and the cost-of-living crisis upon us, it’s a big ask for UK businesses to stay up to date with what’s in the news, but also the opportunities there are to ensure they are making the best financial strategy decisions to maximise the benefits available.
At Bluestone, we are working closely with our clients to ensure they are utilising the most effective options for their businesses, maximising tax savings, capitalising on deferred repayment options and accessing the most appropriate finance solutions for their needs.
The impact of interest rate rises and inflation in the current climate
In today’s current climate, understanding the state of the economy can help you better recognise how you should be utilising and managing your business’s finances.
In recent months we have seen a rapid increase in the cost of living, higher energy bills, soaring interest rates, and the value of the pound dropping, putting financial strain on many people and UK businesses.
The mini-budget
On the 23rd of September 2022, government introduced the mini budget to the public to combat the nation’s economic problems. Some of the key points announced in the mini budget were:
A cut in the basic rate of income tax to 19%.
A reversal of the 1.25% national insurance rise.
A freeze on energy bills that will cost roughly £60bn over 6 months.
Annual tax-free corporate investments allowance to remain at £1m indefinitely.
The budget came with its fair share of mixed responses and reactions, these being:
The pound sterling fell sharply after the government’s planned spending increases and tax cuts were released, losing 3% against the US dollar.
Banks and building societies withdrew several mortgage products in response to concerns about an increase in interest rates.
The International Monetary Fund (IMF) issued a statement criticising the plan because they believe “the nature of the UK measures will increase inequality”.
As a result of the negative response, the then Prime Minister, Liz Truss U-turned on a number of the decisions and subsequently replaced Kwasi Kwarteng with Jeremy Hunt who made further changes. We await to see what further changes are coming now Rishi Sunak is in office.
Interest rate rises and inflation explained
In simple terms, higher interest rates make it more expensive for people to borrow money and encourage people to save more and spend less. With people spending less on goods and services overall, the prices of those things tend to rise more slowly – slower price rises mean a lower rate of inflation.
The Bank of England (BoE) try to ensure that inflation remains low and stable to create a healthy economy and the Government sets a target for how much prices (overall) should go up by each year; the target is currently 2%.
With inflation currently nearer 10%, interest rates need to increase to meet this target. The bank rate (more widely known as the ‘base rate’ or ‘interest rate’) influences all the UK’s other rates, including those you may have for a loan, mortgage, or savings account.
We have all seen that the bank rate has increased from 0.1% last December, to 3% on the 4th November 2022, affecting everyone who has a loan or mortgage that charges a variable interest rate and putting a strain on their finances.
If prices are and remain to be unpredictable, it can be difficult for people and businesses to plan how much they can spend, save, or invest.
You can see how the rate of inflation has changed over the years on the Bank of England’s website here.
How to future-proof your assets
Despite the level of economic uncertainty at the moment, and the concern that we may be in this position for some time, there are some financial solutions that can support UK businesses retain capital and future-proof their assets.
Consider refinancing recent purchases
Realistically operating costs are only going to increase in the coming months and cash will become even more precious to your business. Spreading the cost of your purchases over time via a finance agreement enables you to keep more cash in your business, boosting liquidity and cashflow. If you have recently purchased assets with cash, you might want to consider refinancing the assets. This will unlock the cash tied up in the assets so you can put it to better use in your business.
Investing in renewable technologies to reduce energy bills
With the increased uncertainty around energy costs, energy solutions such as solar and renewable technologies are becoming a viable consideration for many businesses across the UK looking at ways to reduce their energy bills whilst becoming more sustainable.
Spreading the cost of going green using Bluestone’s finance solutions means you can spread the cost in line with the energy savings your business is likely to see, meaning immediate benefits for your business without the large upfront investment.
Financing your assets at a fixed cost
When inflation is high, such as we’re seeing at the moment (10%), Net Present Value becomes an important consideration for UK businesses.
Net Present Value (NPV), in its simplest terms, is the value of money today compared to the value of the same amount, at a future point in time.
As an example, £100 today, if we continue to see 10% inflation for the next five years, might only be worth £62 in real terms by 2027. If you spread the cost of your investment over those five years, the true value of your repayments (and therefore the actual cost you end up paying) will be significantly lower by the end of the term when inflation remains high; that’s well worth factoring in when you’re weighing up the cost of financing a project.
Whilst it may feel like a substantial commitment for your business in the outset, financing your assets at a fixed cost can help you save money in the longer-term, keeping more capital in your business and ensuring you are being as cost-effective as possible.
Bluestone can arrange a variety of bespoke finance solutions to help you manage your business’ finances over the challenging months ahead, including.
Finance leases
Cashflow loan
VAT loans
Corporation tax loans
PI insurance loans
Self-assessment loans
Hire Purchase agreements
Invoice finance facilities
Commercial mortgages
Vehicle finance (personal or commercial).
What to expect in the coming years
The Government’s cap on energy bills means we may expect to see inflation rise a little further from where it is now (10%) to around 11% in October. It is expected that after that, it will remain around 10% for a few months before starting to fall to the Bank of England’s 2% target.
If necessary, the BoE will continue to raise interest rates further to bring down inflation to this target. What is still uncertain however, is how high interest rates will need to go in order for this to happen and is dependent on the economy.
The BoE meet around eight times a year (approximately every six weeks or so) to evaluate further increase rate decisions, with the next announcement due to be made in December this year.
Interested in finding out how Bluestone can support your business?
We can help businesses by obtaining the best funding options and facilities, quickly and efficiently, whilst ensuring your short-term goals and long-term ambitions are considered in your financial strategy.
If you are interested in speaking to someone who can talk through how to best support your business, get in touch with us today. We will assess your individual circumstances and work with you to decide which finance solution would be the right choice for you.
Paying VAT bills every quarter is a legal obligation, but it can be a financial obstacle for many businesses, especially in the current financial climate. Cashflow issues are a common side effect of each quarterly payment. However, what many do not realise, is that it doesn’t have to be like that.
Many business owners are taking the sting out of paying VAT bills by taking out a VAT loan to ensure HMRC are paid in full and on time and then repaying the loan in instalments over time. This can help businesses to retain valuable cash, avoid late payment penalties, and establish a healthier cashflow.
Read on to discover more about VAT loans.
What is VAT?
VAT stands for Value Added Tax.
It is added to the price of a product or service at every stage of production, distribution, or sale to the end consumer. If the end consumer is a business that collects and pays VAT to the government on its products or services, it can reclaim the tax paid. If the end consumer is not a business or is not registered for VAT, they cannot reclaim the tax paid.
Many products and services in the UK are liable for VAT – that is, they are not VAT exempt. Goods and services that are not exempt typically accrue VAT at the following rates:
Standard rate: 20% (most goods and services).
Reduced rate: 5% (some goods and services, such as home energy and children’s car seats).
Exempt rate: 0% (includes basic and essential items such as most food and children’s clothes).
VAT registered businesses collect VAT on behalf of HMRC and must pay the collected tax (minus any reclaimed tax), to the government on a regular basis – usually quarterly. Most VAT must be paid one month and seven days after the reporting period, but some types of business will have different payment requirements.
Businesses must register to pay VAT if:
They expect their VAT taxable turnover to be more than £85,000 in the next 30-day period.
They had a VAT taxable turnover of more than £85,000 over the last 12 months.
The taxable turnover is on sales of goods and services that would be liable to VAT.
Every VAT registered business receives a unique VAT number which must be shown on invoices and most receipts.
It is important to paying VAT bills on time to significant penalties and surcharges. If a business is struggling to pay their VAT bill, they might consider avoiding late payment penalties and keeping cash in the bank by taking out a VAT loan.
What is a VAT loan?
A VAT loan is a type of commercial loan used to pay the quarterly VAT payment to HMRC.
If a business is struggling with cashflow when their VAT is due to be paid or they would rather invest their cash into the business (e.g., to buy new assets), they might apply for a VAT loan. The lender pays HMRC the amount owed in full, and the business pays the lender back in instalments over time. Repayments are subject to fixed interest rates (which will vary depending on the business’ circumstances )and typically made on a monthly basis over 3, 6, 9 or 12 months.
The amount a business can borrow will depend on the unique circumstances of the business and eligibility. In addition to credit checks and a review of the business’s financial situation, other eligibility criteria will usually apply, often including:
the business is VAT registered
turnover is more than £85,000 ex-VAT
UK business
usually a limited company, although partnerships and some sole traders may also qualify
trading for more than one year.
Why would a business use a loan to pay VAT?
A VAT loan ensures that HMRC receive their payment in full and on time, helping your business to avoid late payment penalties.
A VAT loan can prevent you from parting with a large chunk of cash that could be put to better use in your business, i.e., to be invested in growth.
VAT loan repayments can be made on a monthly basis rather than making quarterly VAT payments which can help to maintain a healthy cashflow.
VAT loans do not use existing banking or credit facilities and may be arranged as ‘rolling’ or drawdown borrowing (subject to eligibility). This allows the borrower to use loan funds on a fluctuating basis.
Disadvantages of VAT loans
Interest will be applied to a VAT loan, so while the payments will be spread over a longer period of time businesses will pay more overall.
VAT loans cannot be used to pay other tax liabilities such as corporation tax, although it is possible to obtain a loan to cover corporation tax bills.
Interested in a VAT loan for your business?
We can help businesses like yours to obtain the best funding options and facilities, quickly and efficiently, whilst ensuring their short-term goals and long-term ambitions are considered in their financial strategy.
If you are interested in spreading the cost of your VAT bill over time to retain capital and enable you to manage your budget more effectively, get in touch with us today.
We will assess your business’ individual circumstances and work with you to decide if a VAT loan or another finance solution would be the right choice.
IMPORTANT NOTICE: From 1 April 2023, the Corporation Tax main rate for non-ring fenced profits will be increased to 25% applying to profits over £250,000. A small profits rate (SPR) will also be introduced for companies with profits of £50,000 or less so that they will continue to pay Corporation Tax at 19%. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate.
What is a Corporation Tax Loan? Key Features and Benefits
Every business has to ensure that they pay their tax bill on time, but often this can arrive at an inconvenient time. Given the current economic climate, many businesses may find that making monthly payments over a fixed term provides them with a vital cash injection, giving them a competitive edge by allowing existing funds to be used elsewhere within your organisation. In some cases, the business may also benefit from interest tax relief on the facility.
Read on to discover more about corporation tax loans.
What is corporation tax?
In simple terms, corporation tax is a direct tax that businesses must pay as soon as they start making a profit and then on an annual basis thereafter.
The corporation tax rate is set by the government. In 2022, the main rate on all profits (except ring fence profits which are subject to different rates) are subject to a flat rate of 19%. The amount of Corporation Tax a business is required to pay is calculated as a percentage of that business’ taxable profits. It is not enough to simply look at net profit, there are several tax-adjusted trading profits that must be calculated to pay corporation tax.
All limited companies must pay Corporation Tax annually. Both small and large companies are required to pay a flat rate of 19%, but within the thresholds of company size, a system of ‘marginal reliefs’ exist which can reduce the amount of Corporation Tax your business ends up paying. These include:
Creative Industry
Research & Development
The Patent Box
Disincorporation Relief
Marginal Relief
Terminal, capital, property income losses and trading losses
Visit the government website for the latest corporation tax rates and more guidance on calculating your corporation tax.
When should corporation tax be paid?
Unlike self assessment tax bills, corporation tax is not due at the same time for all businesses. Corporation tax is both calculated and paid annually around your ‘corporation tax accounting period’, typically around the same time as your business’ financial year.
For this reason, businesses are not sent bills for corporation but are required to:
1. Register for corporation tax within 3 months of your business starting to trade (dormant companies are not required to register)
2. Maintain accurate accounting records and prepare a Company Tax Return which will help you work out how much Corporation Tax to pay
3. Pay your Corporation Tax by the deadline (nine months and one day following your accounting period from your previous financial year)
4. File your Company Tax Return before the deadline (12 months after the end of the accounting period covered).
If your period exceeds 12 months for financial statement purposes, two tax returns are required to be submitted.
How is corporation tax paid?
There are several options of methods for payment, but businesses must ensure they allow time for the payment to reach HMRC before the deadline. Options include CHAPS, online banking, telephone banking, direct debit, and BACS. Depending on the method of payment you choose, payments could arrive on the same day as they are sent or could take up to 5 working days.
What if you can’t afford to pay your corporation tax bill?
Failing to pay your corporation tax bill on time can carry serious penalties. Charges begin from the day your payment is late, and interest accrues over time, putting you in a worse financial situation, so it is essential to meet payment deadlines. Continued late payment of corporation tax can result in HMRC taking further action, in the worst-case petitioning for the compulsory closure of your business.
If you are unable to pay your tax bill or there is a chance that you will need to pay after your deadline, you need to contact HMRC as soon as possible. In some cases, HMRC may be able to offer you a payment plan referred to as a Time To Pay arrangement (TTP). This enables some businesses to pay back the tax they owe in instalments. However, TTP is intended as a one-off payment plan to allow extra support, but continuous late payments are likely to result in HMRC asking you to pay the outstanding amount in full.
In order to be eligible for the TTP payment plan, businesses must:
Have no extra HMRC payment plans set up
Have no other tax debts outstanding
Owe less than £10,000.
Alternatively, businesses might consider taking out a corporation tax loan.
Why consider a corporation tax loan?
Using a commercial loan to pay corporation tax bills to reduce the impact of costly late payment fines can be a cost-effective way to utilise cashflow and resources. A corporation tax loan will incur interest, but it enables the business to spread their bill over 6 to 12 months through fixed monthly or quarterly payments. The loan can be secured or unsecured.
The most common reasons for using a corporation tax bill include:
Spreading the cost of a tax bill, retaining capital and therefore spending power, which in turn can allow for increased competitiveness, growth and expansion.
Maintaining a stable and fluid cash flow so they can take advantage of new opportunities and/or fund unexpected costs or drops in income.
Avoiding the risk of high penalties from HMRC for late or non-payments.
IMPORTANT: Taking out any commercial loan should be approached with caution as if your business’ finances are not in a healthy condition, there is a risk of getting into more debt.
Interested in a corporation tax loan for your business?
We can help businesses like yours to obtain the best funding options and facilities, quickly and efficiently, whilst ensuring their short-term goals and long-term ambitions are considered in their financial strategy.
If you are interested in spreading the cost of your corporation tax bill over time to retain capital and enable you to manage your budget more effectively, get in touch with us today.
We will assess your business’ individual circumstances and work with you to decide if a corporation tax loan or another finance solution would be the right choice.
How much is cash worth to your business? We’re going to take an educated guess and say that having cash in your business is essential. Without a healthy cash flow, businesses slow down, struggle to function, and will eventually shut down completely. Why, then, do so many businesses insist on using their precious cash to buy new assets or fund growth when they do not need to?
In this article we take a closer look at the cash vs leasing debate, the pros and cons of both options, and the potential savings your business could make with smarter financial choices.
We know, it’s not exactly an original topic for an asset finance broker, and as we emerge from lockdown and work towards something more like business as usual, we could all do with a little inspiration. So what better way to lift our spirits than with some of those uplifting (albeit cheesy) sayings usually plastered across the walls of downstairs toilets, on cushions, and, of course, the always popular novelty mug?
Money DOES make the world go round
Of course, the best things in life are free. You can’t buy love. All you need is love, and all the other platitudes out there. But when it comes to running a business, there’s no getting away from it, money does make the world go round.
In order to operate and grow, businesses need to acquire assets. Those assets might be computers, office furniture, plant, machinery, vehicles, software, or other types of equipment that enable the business to function.
The big question is what is the best way to acquire those assets. The two main options are:
Buying assets outright, or
Leasing assets.
Buying an asset outright with cash
If it is important that the business owns the asset(s) and you have the capital available, buying an asset outright can be a sensible decision, particularly if the assets are going to retain or appreciate in value. Having said that, buying assets with cash carries both advantages and disadvantages which businesses should be aware of.
Advantages of buying assets with cash
Disadvantages of buying assets with cash
You will own the asset fully.
You have to pay the full cost of the asset upfront which can cause a dent in its cashflow.
You can claim capital allowances on the asset.
Your choice of assets may be influenced by restricted cash flow, i.e., you may buy what you can afford, not what you need.
You avoid entering a financial agreement that may be difficult to terminate.
You may have to take out a loan or overdraft to fund the purchase, and in some cases early repayment of the loan could be demanded at short notice.
The asset will usually cost less overall as there are no interest rates to pay.
You will be responsible for the maintenance, repair or replacement of the assets.
The value of the asset may depreciate over time meaning it will be worth less than what you paid for it.
You will not be able to take advantage of the tax benefits of deducting the leasing costs from taxable income.
Leasing assets
Leasing enables you to use assets for a fixed period of time in return for regular fixed payments. In some cases leasing enables businesses to acquire assets that they would not be able to afford if they had to pay in full upfront, but that is not the only reason why businesses choose to lease assets.
Advantages of leasing assets
Disadvantages of leasing assets
You don’t have to pay for the full cost of the asset and so can retain cash in the business.
A deposit or some payments in advance may be necessary.
You may be able to access a higher quality of asset than you could if buying outright.
As leasing agreements will include interest, you may end up paying more for the asset than you have had you bought it outright.
The regular payments are easy to budget for, and as rates are fixed, there will be no surprise costs to cover.
You will not own the asset, although some agreements will give you the option to purchase at the end for a fee.
Spreading the cost over time enables you to match the costs in line with your income/return on investment.
You will be committing to making the payments for the term of the lease.
In many cases the costs of the assets are fully tax deductible, and sometimes capital allowances can also be claimed on the assets.
You will need to ensure that you fully understand the terms of lease, including any end of lease obligations or payments.
In the case of operating leases, you are not responsible for the maintenance of the assets.
The leasing company carries the risk of the assets breaking down or malfunctioning.
It is sometimes possible to upgrade the assets during the lease by making a small change to the regular payment rather than having to pay a large lump sum.
The main point to take away here is that there is no right or wrong way to fund your business’ operation and growth, but businesses should not dismiss the option of leasing assets before they have weighed all their options, and certainly not before they have done the maths.
Don’t go broke trying to look rich
In reality, there are many situations when leasing is a smarter financial decision than buying assets with cash, as this example illustrates.
Paying in cash
Leasing option (monthly payments £1,998.50)
Project cost
£100,000
Total repayable over 5 years = £119,910.00
Tax saving (based on 19% corporation tax, assuming that Annual Investment Allowance has been used elsewhere)
£11,955.94
£22,782.90
Cost after tax saving
£88,044.06
£97,127.10
Net Present Value (NPV)*
£90,522.47
£79,617.34
*What does Net Present Value mean? As we are comparing you paying out cash today against finance that will require making fixed payments over a period of time in the future, we need to ensure that we are comparing like for like – £1 in the future is worth less than £1 today. This is why we need to apply a discount to the future rentals and tax savings to bring them into today’s value of money.
There is a misconception that the only businesses that would choose to lease are those that cannot afford to pay in cash. Some businesses might even avoid leasing as they do not want to give off the impression that they are low on cash. A possible consequence of this, unfortunately, is that businesses part with their cash unnecessarily, causing themselves cashflow problems that prevent them from being able to invest in growth and often missing out on tax savings.
Essentially, they go broke trying to look rich.
This point of view is made even more ironic when you consider that many of the world’s most successful, cash-rich businesses opt to lease assets and use leasing regularly in their financial strategy.
Lease, Laugh, Love
Almost all businesses reach a point when they need to spend money on new assets in order to grow. Assets that deliver a more efficient and effective operation lead to increased revenue and profits. Those profits can then be put towards further investment, leading to yet higher revenue and profits. However, if the assets are only ever funded by taking capital from the business, cashflow and growth are likely to be impacted.
Many businesses have a negative perception of leasing, or any form of debt. In the UK we regularly hear phrases like saddled with, crippled by or even strangled by debt, and we strive to own our own home and become ‘debt free’ by retirement. But if you are a business owner, this negative perception of debt and leasing assets could be holding you back. Leasing assets can be a powerful way to fuel growth and improve a business’ financial agility.
By leasing the assets that your business needs in order to grow, you can spread the cost over time via fixed regular payments and keep cash in the bank. At the very least, this gives you financial breathing space, a healthy cashflow and more flexibility, so you can put your mind – and the cash you’ve saved – to the task of building your business’ future.
Take a moment to think about what you could do if you leased more of your business’ assets rather than parting with your cash. Would you…
Invest in research and development?
Launch a new product?
Boost your marketing strategy?
Buy more stock?
Hire or promote essential staff?
Protect your business against unforeseen circumstances (like a pandemic-induced lockdown) with an emergency fund?
Leasing can be a powerful funding tool for businesses of any size, and when their debt-to-equity ratio hits the right spot, they can accelerate their growth without taking on too much risk. You could get the assets your business needs to succeed now, spread the cost via regular affordable payments, keep hold of your cash to further growth (or maintain liquidity), and potentially unlock big tax savings.
If you had to choose one adjective to describe how you are feeling about your business’ future right now, what would it be?
Excited?
Optimistic?
Good?
Neutral?
If so, that’s music to our ears, but for many business owners, the unknowns of a post-pandemic future make them feel, at best, anxious, and at worst, terrified.
Of course, fear affects everyone differently. For some it is a catalyst, a reason to take action and fight back, but for others it is a paralyzer. Taking no action and treading water might feel like a safer option, but that is not how businesses grow. Upwardly mobile businesses need assets, the latest technology, functional workspaces, a motivated and productive team, and, of course, cash in the bank.
When used by the right businesses in the right way, finance leasing is a great way to fund those assets and instigate growth, while simultaneously keeping hold of their precious cash.
Why, then, are some business owners scared of finance leasing?
Debt is a dirty word in the UK
One of the best parts of being an asset finance broker is seeing the positive impact that the funding we secure for a customer has on their business, their aspirations and their growth. Whether it is spreading the cost of that new IT system (or even software license renewals), financing the fit out of an office space or refinancing existing plant and machinery, ultimately the outcome is always positive.
Plus, many companies get to unlock significant tax benefits when choosing finance above cash whilst others are able to avoid normal budget restraints, deliver the project they want and start returning benefit to all their stakeholders.
However, despite the positive outcomes, some business owners are still apprehensive about using asset finance.
A survey by The British Bank found that over 42% of UK SMEs they surveyed do not currently use finance and are unwilling to do so whilst 68% agreed that “their aim was to pay down debt and remain free if possible”. We want to be able to puff our chests out and, like a badge of honour, declare we are debt free. We are proud not to use finance.
Culturally, that puts us somewhat at odds with many other developed countries. Take, for example, our near European neighbours in France and Germany. No one really considers buying property there until retirement (possibly) whereas, here in the UK, home ownership is seen as one of the key indicators of a “successful” life. Australians are too busy spending their money enjoying life rather than sinking it into ‘stuff’ whilst our cousins in the USA would raise a Vulcan eyebrow at our determination to pay cash for everything.
The finance industry has failed to educate or empower
Wrapped up in our cultural insecurities around finance is also a great deal of ignorance and misinformation which prevents businesses from doing anything other than paying for assets in cash.
Partly this is the fault of the wider finance industry. For too many years, too many supposed experts have cloaked the relatively simple concept of leasing in a mantle of techno-babble and confusing small print. Hardly surprising then that those responsible for making financial decisions in a business, self-confessed non-experts in this dark art of leasing, at best approach it warily or, perhaps, not at all.
We’ve worked hard at Bluestone Leasing to over the years to do the exact opposite – to demystify the mechanics, to present the offer in a clear and easily understood manner and to employ ethical and transparent paperwork throughout. There is clearly much more for us and others in our sector committed to these principles to do.
Awareness of alternative finance products, and indeed providers, is another factor. Survey data has consistently shown that, outside of standard overdrafts, bank loans and credit cards, most businesses are simply not aware of other financial products.
We see this every day at Bluestone. Our Interiors division specialise in financing the interior fit out for companies looking to relocate or refurbish their existing building. They are almost always surprised to learn that they can pay for their workspace much like they do their building, on a lease and spread over time. When they go on to learn that they can often also include all their costs (including labour and fees) and save significant amounts of tax too, they are amazed.
Thinking of investing in assets for your business? Want to make the most of the super-deduction tax benefit but not sure where to start? We can help. Click here to get in touch.
Finance leasing is surrounded by myths and misconceptions
Fear and ignorance are not exactly great motivators for changing behaviour but how real are those fears?
Myth 1. Leasing is complicated
It can appear that way but it really is quite straightforward. Choose a professional advisor, not just one that specialises in asset finance, but one that gives you confidence that they know their onions and is able to articulate the concept clearly and comprehensively. If you come away from that call or meeting still scratching your head, choose again.
Myth 2: Leasing is expensive
Too often clients are fixated on a rate, APR or cost in isolation. Although what you will be paying back is important, try to look at the bigger picture and factor in all the benefits that you are getting that you might not get with either cash or, let’s say, a bank loan. Tax savings, the ability to spread costs and the VAT and the opportunity cost of using cash to name just a few.
Myth 3: We are cash-rich, we don’t need to lease
You’ve got plenty of cash? Now how about making that cash work for you instead of sinking it into depreciating assets that only return value over time? Take a look at the list of clients on our website and you’ll see there’s a reason why 97% of FTSE top 250 companies use leasing. Ultimately it is less about how much cash you have and much more about how well you use it.
Myth 4: I should use my own bank when I want to finance
Asset finance is a specialist area and, put bluntly, not a forte for most high street banks. An established asset finance business of reasonable size should be able to provide access to a myriad of alternative funders for you all focused on this arena – just make sure that they are truly independent so that they take a whole of market approach and don’t just offer their own, in-house funding.
In our case, the panel is now in excess of 50 and over two thirds of our funders are not accessible to you directly. At the very least, you should compare what your bank can offer against these alternatives.
Finally think carefully whether or not using one bank exclusively for all your finance needs is sensible for you. Consider the idea of spreading your risk and retaining those credit lines with your existing funder(s) for when you need them.
In reality, finance leasing is everywhere
The reality is that it is actually quite rare to find someone who doesn’t use some form of finance in their daily life. Aside from the usual suspects (property and cars), we are all surrounded by finance agreements. From the ubiquitous mobile phone contract, through to digital media subscriptions (Sky, BT, Netflix, Spotify, Amazon, Apple etc.) and even home insurance, all are rental agreements where an element of the amount we pay covers the cost of funds, or interest to you and me.
Suppliers work hard to hide these fact from us (that £2,500 interest-free sofa is really a £2,150 sofa with the interest built in) because they too recognise our cultural hang ups. In business, look at how many things are now being offered on a subscription or “as a service” model.
Admittedly, slowly and generationally, attitudes are changing. As already mentioned, the principle of subscribing to all manner of services is increasing popular and demand driven, which is a good indication that attitudes are shifting.
Using finance should never be scary
The truth is that you cannot decide whether finance leasing is the right choice for your business until you understand it, and this is something Bluestone Leasing can help you with. We can analyse whether or not the numbers stack up, match commercial requirements to available funders and terms, and even do detailed tax comparisons of using capital versus choosing to lease.
Most of the time finance leasing makes complete sense but, there are occasions when it doesn’t. However, you can rest assured that if finance leasing is not right for your business, we will be honest and transparent about it. We have no interest in arranging finance deals that will not benefit businesses both in the short and long term.
Like many things that, on face-value, look sinister, once you take a proper look and understand how they work, you realise there is nothing to be scared of. When you work with a finance broker who not only helps you to understand finance leasing, but also empowers you to make the best possible choice for your business, finance leasing holds no real monsters.
If you are a business owner wanting to invest in assets while keeping cash in your business, get in touch with Bluestone Leasing. We can help you to decide if it is the right financial move for your business, and if it is, we will help you understand how taking out a finance lease could benefit your business both in the short and long term.
We sat down with Bluestone Leasing’s Managing Director, Vineesh Madaan, to go through all the facts and options when it comes to finance to make sure you can make the right decision when it comes to financing your next project. Here’s all you need to know on Finance Leases, Hire Purchase, Operating Leases, Business Loans & Cash.
Finance Lease:
How Does Leasing Work?
When businesses want to acquire assets, they have several options, they can pay cash or look to finance these via leasing. Leasing works where the finance company pays the supplier for the equipment and in turn then becomes legal owners of the equipment, they then lease/hire the equipment back to the end user, the payments are charged plus VAT, which can be reclaimed as normal.
What Are The Benefits of Leasing?
There are several benefits to leasing, naturally a big one is retaining cash, why pay out for something upfront when you can pay over time for it. Another significant advantage are the tax savings, Leasing is highly tax efficient method of acquiring equipment whilst spreading the cost of paying for it.
What Type of Assets Are Best Leased?
Any assets can be financed but the majority must be tangible, some funders only require a minimum of 50% tangible others need it to be 80% plus. The benefit is that a lot of intangible items can be incorporated into the finance. This form of finance tends to suit assets that depreciate in value so can be refreshed at the end of the finance agreement.
What rates Am I Likely to Pay when I Lease?
This depends on the credit rating of your organisation along with the amount being financed, the better the credit rating and bigger the lend the better the rate.
What’s the Tax Treatment of Leasing?
100% of the repayments are allowable against taxable income, for example if your taxable profit is £100,000 and the tax rate is 19% you will pay £19,000 in tax, if you were to make £20,000 in lease payments then you would pay 19% of £80,000 i.e. £15,200 in tax, saving you £3,800 in tax.
What Are the Negatives of Leasing?
You do not or will never legally own the asset, so if asset ownership is your thing then this will not be the product for you.
What Happens at the End of Leasing Term?
At the end of the agreement, you must cancel the agreement with the funder once this happens rather than to continue to pay rents you can pay a one-off infinite rental to retain uninterrupted continued use of the asset, allowing you to do what you want with the assets.
Hire Purchase:
How Does Hire Purchase Work?
The asset is paid for by the finance company, they will want the VAT to be paid up front on the cost of the equipment, this can be claimed back as normal. The finance company then charge a regular payment to the end user, the last payment has an additional option to purchase fee which transfers legal title to the customer.
What Are The Benefits of Hire Purchase?
You have the legal right over the asset allowing you to claim capital allowances including any enhanced capital allowances that maybe available. Also subject to you making all the payments you will become the legal owner of the asset.
What type of assets are best bought with Hire Purchase?
Assets that retain their value are generally financed under this method, because at the end of the finance ownership will be retained. Also should the end user want to utilise enhanced tax allowances then they would use this method.
What rates Am I Likely to Pay with Hire Purchase?
This depends on the credit rating of your organisation along with the amount being financed, the better the credit rating and bigger the lend the better the rate.
What’s the Tax Treatment of Hire Purchase?
The asset is classed as owned by the company so the end user will claim capital allowances as it would normally do for any other asset it owns, the end user can also claim the interest paid on the finance against taxable income.
What Are the Negatives of Hire Purchase?
If you do not have any enhanced capital allowances gaining full tax deduction for the purchase of the asset can take an exceptionally long time, also the VAT needs to be paid upfront so needs to be factored into cash flows.
What Happens at the End of Payment Term?
Once all the payments are made including the fee then the agreement ends and ownership of the asset is transferred to the end user.
Operating Lease:
How Does an Operating Lease Work?
The finance company pays the supplier for the equipment and in turn then becomes legal owners of the equipment, they then lease/hire the equipment back to the end user, the payments are charged plus VAT, which can be reclaimed as normal.
What Are The Benefits of an Operating Lease?
The best use of this type of finance is for assets that have a residual value and where the asset needs refreshing on a regular basis. As the funder has taken a residual value, payments are lower and the asset is handed back at the end of the finance term and a new assets are financed again and so on.
What Type of Assets Are Best Bought With an Operating Lease?
They have to have a value so the finance company can recover their residual value with a profit. It works well for IT equipment.
What Rates Am I Likely to Pay With an Operating Lease?
This depends on the credit rating of your organisation along with the amount being financed, the better the credit rating and bigger the lend the better the rate.
What’s the Tax Treatment of an Operating Lease?
100% of the repayments are allowable against taxable income, for example if your taxable profit is £100,000 and the tax rate is 19% you will pay £19,000 in tax, if you were to make £20,000 in lease payments then you would pay 19% of £80,000 i.e. £15,200 in tax, saving you £3,800 in tax
What Are the Negatives of an Operating Lease?
You will never own the asset, whist your payments are lower, you will need to re-invest on a regular basis and if you want to retain the assets the costs would be higher than a standard finance lease.
What Happens at the End of Payment Term?
The assets are returned to the finance company where fair wear and tear is allowed, if there is any more damage the cost will need to be covered, alternatively the finance company can be paid out of their residual for continued use, this will be an expensive option.
Business Loan:
How Does a Business Loan Work?
A loan as it sounds is where a company is financially assessed and if they qualify a funder provides them a loan in return the company make regular repayments to cover the loan and interest.
What Are The Benefits of a Business Loan?
A loan allows the business to use the funds for anything so does provide greater flexibility.
What type of assets are best bought with a Business Loan?
Any as the loan is paid to the business for them to use as they wish.
What rates Am I Likely to Pay with a Business Loan?
This depends on the credit rating of your organisation along with the amount being financed, the better the credit rating and bigger the lend the better the rate.
What’s the Tax Treatment of a Business Loan?
For the loan itself the interest on the repayments is deductible against taxable income. Should the loan be used to purchase an asset then capital allowances can be claimed as normal.
What Are the Negatives of a Business Loan?
Loans may require additional security. It can also tie up main bank lines of credit reducing the ability for future growth.
What happens at the end of payment term?
Once all the repayments are made then the loan just ends.
Cash:
What Are The Benefits of using Cash?
Saves paying any interest or taking out any debt.
What Are the Negatives of using Cash?
Cash is key for any business to survive so retaining cash is key, utilising all your cash when things could be financed is not safeguarding the future of the business.
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