Financial Accounting considerations - On / Off balance sheet, what is best for me?
Fleet funding isn’t just about costs – it’s also about how your vehicle assets appear on your company’s books. The difference between on-balance sheet and off-balance sheet funding can affect everything from your cash flow to credit ratios and financial reporting.
Here’s how to navigate the options and choose what’s right for your business.
🔍 What’s the Difference?
🧾 On-Balance Sheet Fleet Funding
This means the vehicles (or leased assets) appear as an asset and a liability on your balance sheet. Common with:
- Hire Purchase
- Finance Lease
You’ll usually:
- Capitalise the vehicle
- Claim tax relief via capital allowances
- Take responsibility for depreciation and disposal
✅ Good for asset ownership and long-term value retention
❌ Impacts gearing and liquidity ratios
🧾 Off-Balance Sheet Fleet Funding
Vehicles do not appear as owned assets or liabilities. Common with:
- Operating Lease
- Contract Hire
You pay a monthly fee, and the leasing company owns the vehicle. At the end of the term, you hand it back.
✅ Predictable costs and cleaner balance sheet
✅ Avoids depreciation and disposal risks
❌ You never own the asset
📊 What Changed with IFRS 16?
Under newer accounting standards (IFRS 16), most leases now appear on the balance sheet, even for contract hire — unless they meet “low value” or short-term exemptions.
That said, the financial and tax treatment still differs, so it’s important to review the impact case by case.
💡 Key Considerations for Choosing the Right Option
- ✅ Do you need to protect borrowing capacity or financial ratios?
- ✅ Are you more focused on cash flow or asset ownership?
- ✅ Are tax allowances or residual value important?
- ✅ Do you want end-of-term flexibility?
🤝 Let’s Talk Fleet Funding Strategy
At Let’s Talk Fleet, we’ll help you:
- Compare on vs off-balance sheet funding models
- Forecast cash flow and tax impacts
- Choose the most strategic approach for your vehicle policy and business goals
📞 Book a Fleet Funding Review Today
Not sure what works best for your balance sheet or boardroom? Let's talk about what suits your business.
👉 Contact Us
We can look into this. You may have specific On or Off balance sheet requirements. please see below an important update that may impact your company.We can help you choose the right product and structure in conjunction with your finance team to deliver what you need.
IFRS 16 Update : For Publicly quoted firms that report to the International Financial Reporting Standards and the public sector
New lease accounting rules effective from 1 January 2019.
The International Accounting Standards Board (IASB) has now published a new International Financial Reporting Standard (IFRS) 16, which requires lessees (customers leasing an asset) to recognise assets and liabilities for most leases on the balance sheet. IFRS 16 will supersede the current lease standard International Accounting Standard (IAS) 17. Previously, a lessee would have to determine whether the lease is a finance lease or an operating lease. This is effectively done by assessing the risks and rewards inherent in the lease. Contract hire arrangements are usually operating leases. Publicly listed companies already have to make a note to the annual report, which reflects any operating lease rentals payable. Businesses will need to ensure they report on their liabilities (rental payment arising under the lease) and their asset (the right to use the leased asset). |