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Technology Equipment Leasing |
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Technology Equipment Leasing: Cash vs Lease
With a simple calculation we will show you the comparison between a Hire Agreement and a cash purchase.
With a Hire Agreement, tax relief is available on all rentals at the highest tax rate you pay.
In contrast, a cash purchase will allow tax relief only on the capital allowances on the equipment. This is currently 40% of the cost in the first year and only 25% in subsequent years based on a reducing balance each year.
Example:
This is a model showing the difference in tax relief available.
| Invoice Value |
£ 5000 |
Lease period |
3 years |
| Frequency |
Quarterly |
Highest tax rate |
40% |
|
These figures exclude VAT and assume the organisation pays tax.
Option 1: Lease Rental
Tax relief is available on all rentals at the highest rate you pay.
| Year |
Rentals payable |
Total |
Tax Relief |
| 1 |
4 Quarters at £ 511.50 |
£ 2046.00 |
£818.40 |
| 2 |
4 Quarters at £ 511.50 |
£ 2046.00 |
£ 818.40 |
| 3 |
4 Quarters at £ 511.50 |
£ 2046.00 |
£ 818.40 |
|
| Total tax relief over 3 years period: |
£ 2455.20 |
Option 2: Cash Purchase
Tax relief is only available on the capital allowances on the equipment.
Currently 40% in the first year and less in subsequent years.
| Year |
Capital Allowance |
Total |
Tax Relief |
| 1 |
40% of £ 5,000.00 |
£ 2,000.00 |
£ 800.00 |
| 2 |
25% of £ 3,000.00 |
£ 750.00 |
£ 300.00 |
| 3 |
25% of £ 2,250.00 |
£ 562.50 |
£ 225.00 |
|
| Total tax relief over 3 years period: |
£ 1,325.00 |
The Difference
| Lease Rental Breakdown |
Cash Purchase Breakdown |
| Total Payments |
£ 6,138.00 |
Total Payments |
£ 5,000.00 |
| Less Tax Relief |
£ 2,455.20 |
Less Tax Relief |
£ 1,325.00 |
|
| Actual Cost* |
£ 3,682.80 |
Actual Cost* |
£ 3,675.0 |
Actual Difference = £7.80!
*Difference = Net amount payable after tax relief.
As you can see from the example, the benefit received from the increased tax relief, covers or exceeds the hire charges paid over and above the purchase price of the equipment.
Other matters to consider are preserving your valuable cash reserves when utilising leasing facilities. Cash is the lifeblood of every organisation, so keep as much of it as possible in your account.
If you are considering leasing as an option to cash purchase of equipment please contact us on 0800 970 9751 or email us at
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
for competitive rates
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Confirming the Order - Technology Terms and Conditions |
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Confirming the Order - Technology Terms and Conditions: We have all seen a multitude of order forms over the years, most of which tend to disguise the terms and conditions! Check and check again and if you have any questions or queries be sure they are answered to your satisfaction before signing. One of the main problems is that vendors in general are not in the habit of being completely open, i.e. the information and detail on the order form can be misinterpreted or is simply not detailed enough and assumptions end up being made. Nothing must be left to chance with your investment. For example, in the area of Least Cost Routing (  LCR) the order from, when combined with the LCR Carrier data should provide a complete and comprehensive presentation of the costs with nothing left to chance. It is establishing these expectations beforehand which helps ensure a smooth transition all round. Any other contract terms and conditions should make reference to a schedule of equipment and a method of operation (as mentioned earlier) thereby ensuring a level of expectation all round. Take a look at the article Clearvoice LCR Carrier & Broadband Contract as we have included a copy of our own contract for you to compare. |
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