The rise in VAT to 20% in February 2011 presents a possible opportunity for lessors if it makes outright purchase less attractive.
The shift towards asset finance is expected to be particularly pronounced in the case of small and medium size enterprises.
Bluestone Leasing chairman Philip Bennett said: “To quote David Cameron, we’re all in this together, and no business sector will be immune from the effects of the rise in VAT, including leasing. We can help companies to mitigate their costs over a period of time.
“The upside for companies seeking to use our services is that leasing will convert large capital expenditure into small monthly payments so that a company has the benefits of profit-making equipment immediately while they can keep their cash reserves buoyant.”
James Baird, a partner at law firm HBJ Gateley Wareing, had similar expectations
“If the increase deters capital expenditure, then if anything, it might increase leasing opportunities,” Baird said.
“Pricing for equipment will obviously increase for the initial outlay, so those investing in capital products will probably look to leasing as an alternative.”
Asset finance will be of particular importance to the SME market.
“As far as businesses are concerned, VAT registered companies will be able offset the increase as usual,” Bennett said.
“But the vital small business sector of the economy which is unable to reclaim VAT on purchases will be able to use leasing to spread that increase over time
Others suggested the impact of a VAT rise to 20% would be minimal.
Siemens Financial Services (UK) general manager of vendor finance Peter Austin said: “I expect to see a modest increase in new business levels towards the end of the fourth quarter. That said, I expect the overall impact to be relatively light.”
FLA head of asset finance Julian Rose had greater concerns over whether leasing will be treated fairly in tax law.
“Whatever the VAT rate, the FLA’s main concern is to ensure that there is a level playing-field for asset finance,” Roase said.
“That can get complicated when agreements are signed before a rate increase but assets are delivered after – fortunately we’ve been able to agree an approach with HMRC to deal with this.”
The agreement means that hire purchase arrangements made before 4 January 2011, which would be subject to an initial VAT payment, will still use the old rate of 17.5%, even if goods are delivered after that date.