Find out the true financial pros and cons of IT leasing from an Accountant.
In order to shed light on what can be a potentially confusing area, HardSoft has spoken with
Tony Crisp, a Chartered Accountant at Harlow-based accountancy practise Giess Wallis Crisp LLP.
With over 40 years of experience advising businesses both large and small, GWC covers the full range of general practitioner services including accounts, audits, taxation, bookkeeping, and payroll for corporate clients and the self-employed.
Why do so Many Accountancy Firms Lease Their Computers?
“From an accountant’s point of view, leasing is attractive for two main reasons. Firstly, it’s the lack of upfront deposits and payments. Leasing is a low-cost way of acquiring capital equipment, like computers, without an immediate cash outlay, which you would get if you bought them outright. Even with a hire purchase arrangement, usually, there’s a fairly substantial deposit upfront. So, cash flow is one of the most critical things.
The second reason is that accountants like consistency and evenness with their finances. Leasing allows you to spread the cost of an asset over its useful life, so as the asset you’re using pays back to you, you’re paying out to purchase it nice and evenly. There’s no big monetary outlay followed by several years of payback, instead, the outflow of money is evenly spread along the same lifetime as the asset.”
Do you recommend computer leasing to your c
“Yes, generally we do, particularly from a financial point of view. What’s good for us is good for them in most cases. The lack of a significant upfront payment followed by the even flow of the cost is equally attractive to clients. It introduces flexibility that isn’t always there with loans, so yes, it is something we would recommend for that reason.”
How much money can a business save in tax by computer leasing?
“The reality is you don’t save any tax, but what you do get to do, however, which is equally important, is to defer and spread the tax.
You get tax relief whether you buy computers outright, buy them on hire purchase or buy them through a lease, but it’s when the tax relief is given that makes the difference. With computer leasing, tax relief is given evenly throughout the life of the lease. On the other hand, with an outright purchase, you get all the tax relief upfront but then none in the following years.
Leasing provides an even spread of tax relief as opposed to peaks and troughs, which small and medium-sized businesses don’t always cope with well. It’s much easier to allow for an even spread of anything, so that’s what I like about the leasing tax relief approach.”
Why would a larger company require all new computers to be leased rather than purchased?
What might trigger this is that if a company has already purchased £1m of equipment in its FY and so claimed the maximum AIA’s (annual investment allowance- the capital allowances) for any other purchases it could only claim the annual writing down allowance of 18% of the cost. Leasing then looks much more attractive. Tax relief on leasing doesn’t compare well with tax relief on purchasing if you get the AIA’s on the full cost. But once you’ve used up your AIA’s leasing then looks better. Small/medium sized companies rarely used up their £1m of AIA’s but large companies do.
Is computer leasing easier to set up than most people believe?
“Oh, absolutely. Hardsoft makes it very easy to lease computers and it has the added advantage that your technology is up to date. These days, the amount of hacking that goes on means that if you don’t have up to date hardware and software, you are vulnerable. Computer leasing generates a more regular updating process for equipment at a spread-out cost as opposed to when businesses buy them outright. The way Hardsoft enable businesses to lease computers, you avoid the obsolescence of old kit a lot more easily.”
Are there other advantages to leasing computers over buying?
“Securing a loan from a bank can be tricky for small to medium-sized businesses, and leasing contracts can be easier to obtain, more flexible and quicker to arrange. It can be easier to get a leasing contract than it is a full-blown loan arrangement if you’re buying a lot of kit at once.”
any disadvantages to leasing c omputers?
“It could be argued that the lack of a fixed asset on your balance sheet is a disadvantage but I think that’s pretty marginal. Generally, computer equipment isn’t high enough in value for that to be a significant disadvantage.
Other than that, if a business particularly wanted upfront tax relief, then computer leasing may not be the best option. They would have to buy the equipment and own it, which you generally can’t do with most straight, off-the-shelf leasing arrangements, as you don’t ever own the asset. I think those are probably the only two disadvantages there are.”
Can any business benefit from leasing their Computer E
“Yes, absolutely. I don’t think there are any particular niches or market sectors that have an advantage or a disadvantage over any others, so no, I think it can apply to all. And all the advantages of computer leasing would apply to all.”
Flexi-Lease gives you & your business total flexibility & is perfect if you want the freedom to CHANGE, CONTINUE or CANCEL. But if instead, you want to redeem your ownership discount early make sure to check out our Pure-Rental option. Or if your company requires 30+ devices, Devices for Teams will give your business an agile solution with the freedom to switch or return devices as your business needs change.