Whether you need industrial machinery for your plant or you require cooking items for an industrial kitchen, lease financing is an attractive option when it comes to capital equipment costs.
It’s an alternative to buying an item outright, and it instead means you can use the equipment for a set period of time in return for a regular fee – and then keep it once your loan has been paid off, possibly for a small final settlement.
TK Air Conditioning, specialise in the leasing of air conditioning units on finance. For many clients, accessing equipment on finance is an attractive option for a whole host of reasons.
It means, for example, that the client can spread the cost of their purchase. They don?t need cash on hand in order to complete a purchase, for example, which increases their range of options.
It also means that they can use cash for other purposes, too. By opting to pay for equipment on an affordable credit plan, cash can be used for investments in areas like hiring staff.
But one of the main advantages is certainly the impact on the firm’s end of year tax bill. Accessing capital equipment through a lease rather than purchasing it outright confers on you several tax advantages, and as a result it’s definitely worth looking into.
At the end of each year, a business has to pay its corporation tax bill on profits made during the specified 12 month period. At the moment, this tax is 19% – and while there are plans afoot to reduce this rate in the future, it’s still a substantial chunk.
As a result, this tax can eat quite quickly into your profits. Taking steps to legitimately cut down on the amount of tax paid is something that a number of companies choose to do, and opting for lease finance is one way to do it.
It works like this. The total amount you spend on an equipment lease can be deducted from the amount of profit on which that 19% is levied.
Say your business’ total profit over the course of the year was £30,000. Usually, you’d be required to pay £5,700 or so in corporation tax.
But if you spent £9,000 on an equipment lease instead, the total on which you’d be charged corporation tax would be £21,000. At 19%, your corporation tax bill would be just £3,990 – so you’d be making a saving of £1,710.
There’s no point, of course, in paying to lease equipment simply to cut down on your corporation tax obligations. But if your equipment is essential, doing it the â€œlease wayâ€ is a smart way to also cut down on your tax bill too.
It’s worth noting that almost all businesses can find some way to benefit from this allowance – not just those with large or complicated pieces of machinery. Everything from office photocopiers to business vehicles can be purchased on lease finance, so think outside of the box.
As with any such project, of course, benefiting tax-wise from leasing equipment is not always straightforward – and there are definitely some complexities involved with the equipment leasing tax relief scheme.
The good news, though, is that the complications of this scheme aren’t very prohibitive. In fact, they often work in favour of those taking out the lease.
You can, for example, claim both the capital repayments you make and the interest payments on top of that as capital repayments, rather than one or the other.
But if you plan to use your equipment lease as a way to manage your tax liabilities, it’s worth checking with your providers first to be certain that you fall into a relevant category.
That’s because Her Majesty’s Revenue and Customs, or HMRC, have devised a list of lease type categories – and it separates out long-term leases, short-term leases and hire purchase schemes. As a result, you should always check the small print before going ahead – and check with your accountant that your planned purchase will fit with your taxation goals, too.