Originally published 1st March 2012, updated 30th August 2021
Thanks to changes in financial law application over the last few years, leasing business equipment is great for tax breaks.
While financial and tax law continually shifts, it has become increasingly favourable for leasing business equipment over the last several years.
Tax Benefits Of Leasing
This is because 100% of your lease is tax deductible.
Leasing reduces your tax bill, with all of your lease being tax deductible. With a lease solution for your IT devices, you convert a large capital expenditure into small manageable monthly payments. This allows your company to keep a reliable and steady cash reserve available. This can be utilised to increase profits.
All of your monthly lease payments are written off against the business’ tax bill. This can be a huge tax savings. Depending on the rate of tax that you pay, you could be making savings of 20-40%.
Most device leases from Hardsoft are OPEX. These are operating leases. This makes them direct operating expenses rather than debts or outstanding liability. Banks are more favourable to leases over liabilities. You might see leasing referred to as ‘off balance sheet financing’.
Leases can be offset against taxable profits. Any capital allowances are passed onto your business.
Now VAT can also be reclaimed on monthly payments.
With a lease, since the equipment isn’t truly your property, it does not appear on your business balance sheet. Therefore, it doesn’t need to be depreciated over a fixed period. Whereas, if you bought your computer equipment, it becomes a depreciating asset, its value decreases over time.
Annual Investment Allowance allows a tax relief for UK businesses to purchase equipment, including IT hardware.
It stimulates economic growth for the country and naturally is a huge benefit to businesses by helping them save money on essential equipment to run their companies.
It makes tax relief faster too as you can claim full expenditure in the year of purchase rather than over a number of years.
The main issue with AIA is that it is always changing since its inception. In 2008 it was capped at £50,000. Then raised to £100,000 in 2010.
When we originally posted this blog in 2012, the AIA had been reduced to only £25,000. However, since then it has been raised several times. In 2013 it was raised to £250,000. In 2014 it was doubled to £500,000. This was reported as a temporary measure with the intention of being reduced to £25,000 again.
Despite this intention in 2015 it was raised again.
In 2019 it was temporarily set to £1000,000 for the next two years. It has just been announced that this level will be maintained for the next year.
It is likely that this is intended to stimulate more growth in the wake of economic uncertainty caused by COVID and Brexit.
For the time being, it may seem businesses have more allowance to play with for the sourcing of their equipment. However, they still need to carry out diligent financial planning after nearly two years of furloughs and with future virus variant uncertainty.
It is in every businesses’ interest to maximise tax benefits and cashflow. Leasing can bring useful tax benefits compared to buying equipment.