Many businesses believe leasing is an expensive alternative to paying cash but that simply isn’t the case.
With the reduction in the Annual Investment Allowance from £100,000 to £25,000 from April 2012 and Capital Allowances reduced to 18% it’s why even large ‘cash rich’ companies are choosing to lease their new computers.
Budgets for new equipment need to be carefully considered as reduced capital allowances means companies have to plan purchases. The impact for small companies will be massive. It’s very easy to spend £25k a year on normal capital investment in a company and the almost biannual need to reinvest in computers means a company can easily exceed the £25,000 allowance just by adding a few Apple Mac computers or a HP Proliant Server. Hence many SME companies are turning to IT leasing just to gain the tax advantages of leasing which is 100% allowable.
Because lease payments are treated in your accounts as a rental then they are 100% allowable against pre-tax profits. The total cost of your purchase (capital and interest) can be offset during the lease period; with your payments deducted as a normal trading expense. The real cost of your lease can be significantly lower than the payments you make ! Typically a £1000 purchase is in real terms only £950. Leasing has been popular in the recession as it was and is easier to obtain than bank borrowing and is often cheaper than bank lending. The April 2012 reductions in allowances means leasing has become more popular.
The scenario is worse for Sole traders than Limited Companies. As of tax year 2012/2013 Corporation Tax is reduced by 1% to 20% but nothing changed in personal income tax. So the Government has ‘given’ a little to Limited Companies to compensate for these reductions in AIA. It’s really NOT great if you’re a sole trader/partnership though. With tax rates still at 40%-50% + leasing computers makes even more sense.
Check out the facts with your Accountant …. A cash purchase will allow tax relief only on the capital allowances on the equipment. This is now18% of the cost in the first year and then 18% in subsequent years based on a reducing balance each year. For larger companies these capital allowances are even lower and therefore the benefits of leasing are greater.
Essentially the higher rate of tax a company or sole trader pays the better the lease advantages. The rate of Capital Allowances erodes this benefit but in all cases it is always better to lease than pay cash- unless a business simply doesn’t make a profit ! Unlike most high street bank facilities or overdrafts, that are subject to the change in market conditions, an IT lease facility with its protected payment and fixed interest rates allows for effective budgeting. And leasing has very few ‘set up’ fees or charges on property.
Forgetting the financial benefits of leasing computers , that your accountant can tell you about , is another simple advantage of leasing and that’s cash flow ! In a recession Cash is King.
HardSoft Computers are a ‘one stop’ shop for the supply of both the computers and the finance on a simple and flexible lease agreement. With a team of support engineers (all Apple approved) HardSoft have been established for over 25 years and have a nationwide branch of offices including a new Apple store in Shoreditch – in the midst of the new London Tech City. Leasing finance is arranged through the admin team at the Head Office near Stansted Airport in Essex.