Frequently Asked Questions about Subscription

What’s the difference between initial subscription period and continuation period?

The initial subscription period is the minimum term of the contract. This is followed by a continuation subscription which can either be quarter by quarter or a new longer extended period as the user wishes. Payment continues as before unless the Supplier has reason to modify it – obsolete product / reduced service / commercial reasons. However this is a major earning opportunity as most of the continuation subscription income goes to them to justify an initial investment by them in the subscription contract.

What happens at end of subscription period?

If the user wishes to end the subscription for whatever reason, whether at the end of the initial or during the continuing period, three months notice is given. Thereafter, use of the products and services are terminated and the products are returned to the Supplier.

Over what periods can a user rent?

The Subscription initial period may vary from 1 to 7 years.

If a user wants to cancel a subscription agreement, can they?

The agreement can be cancelled at any time by giving 3 months notice to the Supplier, effective at the end of a quarter. If this happens during the initial period, a termination charge will be made in respect of the uncompleted period, including the supplier’s costs and the removal of the products.

Can the installation of subscription equipment be scheduled over a period ?

Yes. An additional CUC is completed for each delivery. The subscription payment will normally be related to the total product delivered.

What happens at the end of the initial subscription period?

The user can review whether of not to carry on and may cancel at that point. If not the subscription agreement carries on, either by quarter or on an agreed extended period.

Can the user add other products to their subscription agreement?

Yes - from or through the Supplier.

Is there any discount if the user pays their subscription in advance?

An upfront payment of subscriptions would justify a small reduction. However, this would be most unusual as the subscription payment flow is meant to match the value of use by the user.

What is the interest rate used for subscription?

Interest rates are not applicable. Interest rates are for leases and hire purchase financing which are ways of financing a capital purchase. Subscription is a ‘payment for use’ system provided as a service, as a combined package of product, software if applicable, support, maintenance and special installation work.
The charge is based on an assessment of the combined supplier cost and the contribution the package makes to a typical user’s business.

Can the user change current products on subscription?

Yes. The Supplier’s objective is to assist the user in moving ahead as technology advances and operational needs change.

Can the user add new products when they want?

Yes, as and when there is the requirement.

Can a user negotiate subscription terms?

The Supplier will provide the products and services as per the subscription Price Book and standard terms and conditions. Occasionally, this may be varied by the Supplier management for special situations. The removal of the capital budget constraint and adjustable payment cash flows reduces the problems for the user.

Can the user negotiate continuing subscriptions at the end of the initial period?

Not normally. However the Supplier could judge if the product element was still giving a competitive performance compared to the market and adjustments may be made as they see as appropriate.

If the user signs a new CUC for ALL equipment when they add new equipment, do they get a better deal?

Not automatically. However, as with the previous question it would be a time when the Supplier might consider the cost / performance of the existing  product element.

Is VAT included in subscriptions?

No, VAT is charged in addition.

If bought, can the user change to subscription now or later?

Yes, but this would be negotiable. The Supplier could repurchase the product elements and repackage it with the services to provide a typical Supplier subscription.

What are scalable subscriptions?

These are subscriptions that have been adjusted to create a cash flow that meets the user’s special need or market growth.

What are holiday periods?

Where there will be delays in the user getting benefits from the subscription it is possible to have a free period of use of the product elements. This would typically be three months, but in certain circumstance, may allow up to 6 months.

Can the user assign a subscription agreement?

No

Can the user move equipment as required?

Yes, but if it is a major move, tell the Supplier in advance so that they can assess the need for change in the support arrangements and keep track of the assets.

How does subscription appear in the user's accounts?

All subscription contract payments are off balance sheet and are treated as P/L items. However any options for the future purchase of the products would require accounting to be on a capital basis. Any service charges would remain as P/L expenditure.

Are there any tax benefits for subscription?

All expenditure on subscriptions are eligible for tax relief in full in the year that the expenditure is incurred.

Why subscription and not purchase?

“If it appreciates, buy it – if it depreciates, rent it.” J Paul Getty.

Plus...

• No capital budget required.

• Cash flow tracks income.

• Includes all elements in a single package.

• Close ongoing direct relationship with the supplier.

• Easy evolution through succeeding technologies.

• Flexible and economic.

• Immediate full tax relief

 

Can the user purchase during the rental period?

This has happened once or twice over the last 20 years. Only very special circumstances would require this. However it could be expensive as it would be based on the expected residual life left in the system and require the restatement of tax claims from a P/L to a capital basis.

Can the user buy the product at the end of the subscription period?

As 24 above, it would be expensive and involve tax changes. In addition the HMRCS would want proof that the sales option did not exist from the beginning of the agreement.