Cashflow, cashflow, cashflow.

The major advantages of leasing are that you can afford the system your business needs whilst preserving your working capital - upgrade equipment without worrying about how to get rid of depreciating assets and save money while youíre doing it.

Many businesses believe that taking out a lease involves a lot of paperwork which couldnít be further from the truth. Leasing is used by companies large and small who may have the financial resources to buy the equipment outright, but choose not to so that they can benefit from the advantages which leasing offers.

We have prepared a simple illustration which backs the theory:

Finance Lease versus Buy Comparison
prepared by Anova Technology Ltd

Example based on the purchase of a £10,000.00 computer system over a 3 year period and based upon loss of 3% interest rather than the benefit to the business of the retained 10K

Cash Purchase
Interest lost from withdrawing the 10k from bank deposit account @ 3%

Yr1	£300.00
Yr2	£309.00
Yr3	£318.27
Total Interest Lost	£927.27
Total Cost Including Interest	£10,927.27

Tax Allowance
50% First Year Allowances
25% thereafter
Assumed Tax Rate of 19%

£5,000 x 19%	£950.00
£1250 x 19%	£237.50
£937.5 x 19%	£178.13
Total tax allowance over 3 years	£1,365.63
Total Cost for Cash Purchase	£9,561.64

Three Year Finance Lease
36 monthly payments of £330.00 + vat

Total rental payments over 3 years	£11,880.00
Less 100% tax relief on rental payments at 19% tax rate	£2,257.20
Less interest saved	£927.27
Total cost of 3 year finance lease	£8,695.53
Saving from 3 year lease against cash purchase	£866.11

Assumptions
Subject business is a small to medium business and therefore subject to 19% tax rate.

Reference
This example is based on rules contained within the Inland Revenues Business Income Manual Section No: BIM61101 - Finance Leasing:Tax Treatment.

If you would like more information or a personalised quote please contact us for a tailored solution.

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