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(UK Example)
"Leasing" is a term associated with higher-cost rental payments, which costs more in the short and long term, plus you don't even own the equipment. WRONG!
The truth is that if leasing stereo microscopes, or non-contact measuring microscopes, the costs are actually reduced, since reclaimable tax is 100% of the lease cost, which is far more reclaimable tax than with a capital purchase. Now, this is kind of an accountant thing (below is an example of how it works), but before I explain how it works, here are the answers to a few common misconceptions.
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With leasing, do I own the equipment? |
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Yes! At the end of the lease period, you own the equipment. |
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Does leasing really cost less than a capital purchase? |
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Yes! With a capital purchase, tax relief is only available on the capital allowances of the equipment. With leasing, tax relief is available on 100% of the lease cost. See example below. |
e.g. Cash Purchase vs. Lease Purchase
| Assumptions, for illustrative purposes |
| Equipment Price: £5,250 |
| Lease Period: 3 years |
| Frequency: Monthly |
| Company's Tax Rate: 30% |
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Cash Purchase
| Tax relief is only available on the capital allowances on the equipment. |
| Year |
Capital Allowance |
Tax Relief |
| 1 |
25% of £5,250 = £1,312.50 |
Less 30% = £393.75 |
| 2 |
25% of £3,938 = £985.00 |
Less 30% = £295.50 |
| 3 |
25% of £2,954 = £739.50 |
Less 30% = £221.85 |
| Total tax relief: |
£911.10 |
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Lease Purchase
| Tax relief is available on all rentals, in this case, at a rate of 30%. |
| Year |
Capital Allowance |
Tax Relief |
| 1 |
12 rentals of £178.50 |
Less 30% = £642.60 |
| 2 |
12 rentals of £178.50 |
Less 30% = £642.60 |
| 3 |
12 rentals of £178.50 |
Less 30% = £642.60 |
| Total tax relief: |
£1,927.80 |
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By choosing to lease, the company would gain over £1,016.70 more in tax relief when compared with a cash purchase.*
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Assumption are that the company can claim the full rate of Corporation Tax.
This example is for illustrative purposes only.
Always consult a professional advisor. |
If you have any questions or require further information, please contact us. |
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