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The Benefits of Leasing
Leasing converts a large capital expenditure into small monthly payments. This gives your company the profit-making equipment immediately whilst keeping company cash reserves available for other business growth activities.
Instead of investing your precious cash reserves into depreciating assets, your company can use them to help increase profits.
Lease Rental is 100% Tax deductable
The main reason that the majority of companies lease rather than purchase equipment is that they use leasing as a method of reducing their tax bills. This is because lease rental is 100% tax deductible, meaning that all payments you make for your equipment are written off against your tax bill. For any profit making business this means a substantial saving in real cost of acquiring equipment by lease rental. This could save you between 20-40% of your lease payments (depending on the rate of tax you pay).
Payments on qualifying leases are written off as direct operating expenses, rather than a debt or outstanding liability. This reduces short term taxable income.
Any capital allowances are passed on to you, you can offset your rentals against taxable profits and you can also reclaim the VAT on your monthly payments.
This ‘rental’ status, as opposed to a liability on a company’s balance sheet, is something the banks like to see. For this reason, leasing is often referred to as ‘off balance sheet’ financing – a great advantage to both large and small business operations.
Equipment Leasing Calculator
You can download the equipment leasing calculator below to see what your weekly and monthly payments would be
Ownership at the end of the lease
Lease rental is just that, a rental agreement. The Title of the goods remains with the Lease Company (e.g BOSEF), which means the equipment does not show on your company’s balance sheet. Not appearing on the balance sheet means it does not need to be depreciated over a fixed period of time.
AAs a broker we are the third party involved within the lease agreements, which means we buy the equipment from the funder and then sell it on to the customer. This means that the customer can take full advantage of all the benefits of leasing but still owns the goods at the end of the agreement.
When the capital invested becomes a depreciating asset, e,g in the case of an outright purchase, the asset’s value decreases overtime.
The total amount that assets have depreciated by during a reporting period is shown on the cashflow statement, and also makes up part of the expenses shown on the income statement. The amount that assets have depreciated to by the end date is shown on the balance sheet.
