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Leasing Equipment versus Outright Purchase - New 2010 Example

Guest post by: Al Shea

Article Overview: This article covers the changes in the tax allowances that are now available to business owners in the United Kingdom. Significant changes recently came into force regarding how much can be offset against pre-tax profits,

Leasing Equipment versus Outright Purchase - New 2010 Example

There are various tax advantages available to businesses that either lease equipment or buy it outright. The old allowance policiesmeant a business could write off 40% of the asset in the first year and then 25% of the remaining value each year thereafter when buying equipment outright, as opposed to offsetting 100% of the monthly rentals if the business chose the leasing route.

The capital allowances for purchasers of equipment have recentlychanged quite substantially.

For outright purchases made by companies after 1 April 2008 and for sole-traders/partnerships after 6 April 2008, there is an

Annual Investment Allowance (AIA) of £50,000. This means thatequipment purchased outright up to a total value of £50,000 during their tax yearcan be claimed against their businesses profits. Anything above this amount during the same tax yearis thensubject to a Writing Down Allowance (WDA) of 20% per annum, and 20% pa on the reducing balance each year thereafter.

This policy changed again in the recent Budget (March 2010) - the major change being thatthe AIA was doubled from 1 April 2010 for companies and from 6 April 2010 for sole-traders/partnerships. This now means that businesses can write offthe first £100,000 of equipment purchases against their profits and then the standard WDA of 20% kicks in thereafter.

Remember however that this is only applicable to the equipment bought outright by the business. If you choose the lease rental option (because you don't own title to the equipment) you can still ouffset 100% of every monthly rental payment you make. It is really down to your own business structure, cashflow, and operational procedures whether you ultimately choose to buy equipment outright for your business or opt to lease rent it, both have their advantages that should be carefully considered before making your final decision.

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Article Tags: business owners, leasing equipment, outright purchase, pretax profits, tax allowances, united kingdom



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