Tax example
A Company wishes to buy a new item of equipment. The supplier has offered the company two options, either to buy the equipment outright for cash or to use leasing.
Assumptions:
| Equipment Price | £6,000 |
| Lease Period | 3 years |
| Frequency | Monthly |
| Company's Tax Rate | 30% |
Cash Purchase
Tax relief is only available on the capital allowances on the equipment.
| Year | Capital Allowance | Tax Relief |
|---|---|---|
| 1 | 25% of £6,000 = £1,500.00 | Less 30% = £450.00 |
| 2 | 25% of £4,500 = £1,125.00 | Less 30% = £337.50 |
| 3 | 25% of £3,375 = £843.75 | Less 30% = £253.13 |
Lease Rental
Tax relief is available on all rentals, in this case at a rate of 30%.
| Year | Rentals Paid | Tax Relief |
|---|---|---|
| 1 | 12 rentals of £195.00 | Less 30% = £702.00 |
| 2 | 12 rentals of £195.00 | Less 30% = £702.00 |
| 3 | 12 rentals of £195.00 | Less 30% = £702.00 |
Equates to:
| Cash Purchase | Lease Rental | |
|---|---|---|
| Total tax relief | £1,040.63 | £2,106.00 |
By choosing to lease, the company would gain over £1,065.37 more in tax relief when compared with a cash purchase.
Assumtion that company can claim the Full Rate Corporation Tax.
This is for example purposes only.
Always consult your professional advisors.
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