Tax Advantages Of Leasing

Tax Advantages of Leasing

Most clients use a lease to acquire their machinery. This is a highly tax advantageous means of purchase because every payment receives 100% tax relief.

Example figures

Outright purchase: £5,000

Lease: £26.76 + VAT per week
(Paid by monthly direct debits of £115.98)

60 payments (5 years) £6,958.56

Maximum tax relief 40%             £2,783.42

Cost after tax relief                     £4,175.14

A SAVING OF £824.86 AGAINST THE CASH PURCHASE PRICE

As you can see by the example above the lease can have considerable advantages so long as you are in profit. Amount of tax relief depends on your tax band (22% / 40%).

1. The tax relief can actually reduce your overall cost
2. You don't have to endanger your liquid cash flow purchasing new equipment when you can invest in stock and increase your profits.

End of Lease

During the lease period (normally 3-5 years) you are renting the system and for that reason you are gaining your 100% tax relief. At the end of the period therefore the equipment is not your property, which means in theory you should return it to the suppliers.

However in practice no one does this.

We will sell on the ownership of the system for one further monthly payment, which of course is still 100% tax deductable.

Which way to go?

Unless the customer has the cash in the budget with nothing else to spend it on most clients will prefer the lease option.

*Capital allowances can be claimed against equipment bought outright at a value of 25% of the written down value of the goods, depreciating year on year.