Business Leasing versus Buying
Whether you are a sole trader, a PLC or a government body, cash flow is the life blood of business and when comes to spending large chunks of it on equipment sooner or later the same question will come up, is it better to buy IT Equipment out right or to lease it. Well, here we will try to show you that from a cash flow point of view leasing has considerable advantages.
A distribution company who is rapidly expanding decide to buy their sales reps laptops. They have decided to lease 10 laptops at £1000 + vat each, which is a total cost of £11,750 inc VAT. They have also agreed that after 3 years they will look to replace them to ensure that they don't fall behind with technology. The following two scenario's show the financial outcome of what buying verses leasing would be.
Scenario 1
Buying outright
The company buys the 10 new laptops and shells out £10,000 + VAT, Immediately they are £11,175 down but as they are VAT registered they can claim the VAT back at the end of the current quarter in a few months time.
And that's it, your money is tied up in the new equipment, so if they had other plans for the £10k then they are going have to get it from else where. Over the the next three years the company can claim back 25% of the balance per year
Initial Purchase Price £10,000
• Year 1
25% of £10,000 = £2500 - Balance = £7,500
• Year 2
25% of £7,500 = £1875 - Balance = £5,625
• Year 3
25% of £5,625 = £1,406 - Balance = £4,219
So at the end of the laptops 3 year working life the company has been able to claim £5781 against pre tax profits.
Scenario 2
Lease Rental
The company leases the 10 new laptops over a 3 year period, paying 36 monthly payments of £370 + VAT. So out of their original £10,000 + VAT budget they still have it all to spend on stock which they can sell for a profit, something that could not have been done if they had bought outright, that continues in ever decreasing amounts of the next 3 years giving them plenty of opportunity to make more money whilst having the use of the new equipment which helps them to become more efficient and more profitable. This really is a case of having your cake and eating it.
But there's more, not only does the company have the money to spend on more stock, the payments they make on the lease are 100% tax allowable against any pre-tax profits. As shown below
Year 1 100% of £4,400 (12 x £370)
Year 2 100% of £4,400 (12 x £370)
Year 3 100% of £4,400 (12 x £370)
Total that can be claimed back against pre tax profits is £13,320 CONCLUSION
Even though the lease rental has hire costs of £3,320 + the £10,000 over the 3 years the ability to claim all of this back compared to the £5,781 for the outright purchase shows the tax benefits of leasing.
Why 'make do' with equipment that 'won't do'? The computer leasing solution can give you the tools you need and not what your bank account dictates to you.
So leave your overdraft in tact and take the pressure off. After all today's cutting edge equipment will be tomorrow's 'old hat'. It's the flexible that prosper, not the companies that hang on to old, outdated equipment. As any financial advisor will tell you, investing in a fast depreciating asset is not a wise move.
Let's face it, for most people, if you waited until you had the cash to buy a house, you'd be waiting for a very long time and may never buy one.
To discuss your requirements or a free computer leasing quotation, contact our sales team on 0845-130 1442 (local rate).
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What is leasing
Computer leasing is a form of computer finance that allows your business to get the best investment from your money. Leasing is a finance agreement between your company and a leasing company. When you enter a computer leasing agreement you will be committed to repay a given number of fixed rentals for the term of the contract.
We simply sell the computer equipment to the leasing company and you “rent” the equipment. The goods are owned by the leasing company at all times until the end of the lease when you have the option to buy the equipment or simply upgrade / replace and enter a new computer finance deal.
Because you are renting and not buying the goods you can claim 100% tax allowance on the payment.
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