Glossary · UK
What is Equipment Leasing?
A finance arrangement where a business rents equipment for regular payments instead of buying it outright, spreading the cost over time.
Full Definition
Equipment leasing lets a UK business use assets -- machinery, vehicles, IT or office equipment -- in exchange for regular rental payments rather than paying the full purchase price upfront. The two main forms are a finance lease (the business carries most risks and rewards, often with an option to keep using the asset) and an operating lease (a shorter-term rental where the lessor retains the asset). Leasing preserves cash flow and avoids tying up capital, though the total cost usually exceeds outright purchase. Tax treatment depends on the lease type: rental payments on operating and many finance leases are generally deductible as a business expense against profits, whereas buying an asset outright may instead qualify for capital allowances. VAT at 20% typically applies to lease payments and may be reclaimable by VAT-registered businesses. Leasing matters because it shapes a company's cash flow, balance sheet and Corporation Tax position, so the structure should be chosen with care.