Tax relief is the amount of money your business corporation tax bill can reduce by.
If your business makes a profit of £25,000 and your corporation tax rate is 20% that means that a corporation tax liability will arise of £5,000.
How does tax relief with leasing reduce corporation tax?
If during the tax year your business spends £3,000 on leasing equipment then instead of paying 20% corporation tax on £25000 you would only pay 20% of £22,000 i.e. £4,400. Therefore the corporation tax liability would reduce by £600.
But are there tax allowances if the equipment is purchased outright?
Yes, these are called Capital Allowances and are received as Writing Down Allowances or the amount of depreciation permitted by the Inland Revenue on equipment purchases.
What is a Writing Down Allowance?
This is the percentage that can be claimed against equipment purchases as a capital allowance and is currently fixed at 18%. You would be able to claim, on a reducing balance basis, against your corporation tax at the rate you pay.
This all seems very complicated!
Talking about tax is never easy. Perhaps the following will help. Using the earlier example in the Lease V Buy section, equipment purchased for £8250.00 + VAT over 3 years with monthly payments of £284.63 would attract allowances as follows:
18% of £8250.00 = £1485.00
20% of £1485.00 = £297.00
Tax Relief = £297.00
18% of £6765.00 = £1217.70
20% of £1217.70 = £243.54
Tax Relief = £243.54
18% of £5547.30 = £998.51
20% of £998.51 = £199.70
Tax Relief = £199.70
Total Tax Relief = £740.24
Compare this to the £2151.81 tax saving gained by leasing the equipment and you can see why a Finance Lease could be the perfect answer for your business.
Click here to see Other Advantages of Leasing
Preserves Working Capital – A Finance Lease means that valuable cash can remain in the business and be used for continued growth.
Budget Control – With a finance lease the payments remain fixed for the duration of the contract so you know exactly what and when you paying.
Protects Other Lines of Credit – Existing credit lines, such as bank overdraft or another facility, remain intact for when times are a little uncertain.
Correct Equipment Now – Why settle for inferior equipment? Spreading the cost over its useful life makes perfect sense and ensures you get what your business needs.
Upgrading – A flexible CLS Finance Lease ensures you stay ahead with advancements in technology.