Can Leasing Really Claim to be Tax Deductible? We take a closer look.

20th May 2019
Animated Man holding the X from the word Tax Deductible Leasing

We are asked by customers if leasing is really tax deductible… but there’s a bigger story.

Leasing converts large capital expenditure into small monthly payments, leaving your cash reserves in place for immediate expenses, but does this mean that it’s tax deductible?

The quick answer is YES! Each payment is 100% allowable against tax.

Capital Expenditure - Capex

But there is a background story … generally, businesses prefer leasing because buying outright is considered Capex (Capital Expenditure), which means that not all of the amount paid upfront can be deducted. Whereas, the amount paid to a leasing company is Opex (Operational Expenditure) because it’s incurred as part of the daily business operations, and therefore the business can deduct the cash that it spent within a tax year.

Tax relief is available whether you buy outright, lease, or buy on hire purchase, it’s when that take relief is given that makes a difference to businesses. When you lease computers, the tax relief is spread evenly throughout the lease term, whereas with an outright purchase the tax relief is given upfront but none over the following years.

In reality, you don’t save tax by leasing, but perhaps more importantly, you are able to defer and spread the tax you pay. It’s this even spread which makes leasing more attractive to SMEs because it means that financial planning is easier to manage.

Here at HardSoft, we have several leasing solutions and whether you decide to go the Capex or Opex route, we have a solution to fit your needs.

Is your Lease an Operating or Finance Lease?

We have worked with our own accountants and determined that when you consider the terms of “Financial Reporting Standard 102” our leasing solutions are deemed to be either an Operating Lease or a Finance Lease. The table below offers some definitions to help you.

But even then it also depends on whether your business is part of a group and whether that group has already claimed it’s £1million limit of Capital Allowances. A company can claim Capital Allowance’s when the expenditure is incurred and this doesn’t necessarily mean when you pay. The general rule is – expenditure is incurred when the obligation to pay becomes unconditional.

Photo of a UK self assessment tax return with calculator and payslips.

Your accountant is likely to ask you about any lease contracts you have in place. If you are an existing HardSoft customer, we can provide you with the information you’ll need to allow your accountant to decide how they should account for your lease payments.

Please note that whilst we are happy to assist your accountant and provide you with clarifications on our different leasing solutions, HardSoft is not a tax advisor and you should always seek professional advice from an accredited professional.

For more information on leasing from HardSoft Computers, get in touch with our sales team on 020 7111 1643, email sales@hardsoft.co.uk, or use the web chat facility on our website.