Asset Finance Berkshire - Cash for Computers

Cash Flow is the life blood of all our businesses.
Considering purchasing capital goods? then read on -

Purchase vs Leasing
“Paul Getty once said “Rent it if it depreciates Buy it if it appreciates”
Whether you are an individual, sole trader, or even a public liability company.
Cash flow is the life blood of your business (Cash is King)
The question keeps coming up, buy or lease? I have set out below details to assist in arriving at the right decision.

A prominent company has decided to update its servers. They have decided that the cost would be £11,175 including VAT, they expect to expand the business further within the next three years to ensure that they don’t fall behind the technology stakes again.
The following scenarios will assist them in the decision.

Buy
The company buys the server for a cost of £10,000 + VAT this creates an immediate hit on cash flow of £11,175.
VAT can be reclaimed in full £1,750 at the end of the current quarter in three months time
That it, their money is tied up in the new equipment. If they had other plans for the £10k they would need to get it from elsewhere. Over the next three years they claim back 25% per annum of the depreciating balance.

Purchase Price £10,000
Year 1
25% of £10k -£2,500 = £7,500
Year 2
25% of £7,500 - £1,875 = £5,625
Year 3
25% of £5,625 - £1,406 = £4,219

At the end of the servers expected working life the company has been able to claim £5,781
Against pre-tax profits, leaving a net outlay of £8,265

Lease
The company leases the server over a three year period paying an initial one months payment of £343 +VAT followed by 36 monthly payments of £343 + VAT
Therefore out of the original budget of £10k they still have left £9,657 to spend on the stock that they can sell for a profit. This is something they could not have done had they bought the equipment outright.

But there’s more. Not only does the company retain the money to spend on more stock, but the payments they make on the lease are 100% allowable against pre-tax profits.

Purchase Price £10,000 + VAT
Year 1
100% of £4,116 (12 x £343)
Year 2
100% of £4,116 (12 x £343)
Year 3
100% of £4,116 (12x£343)

The total that can be claimed back against pre-tax profits is £12,348 – leaving a net outlay of £8,843

Even though the lease rental has a higher cost of £2,348 the ability to claim all of the payments against profits compared to the £5,781 for the outright purchase shows the tax benefits of leasing equate to almost £2,000 –a net cost of difference of £378 but had the benefit of £10,000 working in the company, or sitting earning interest or avoiding onerous overdraft charges.

Summary
Why ‘make do’ with equipment that ‘wont do’ our leasing solutions can give you the tools you need and not what your bank account dictates. Leave your overdraft intact and remove any pressure. Today’s cutting edge of equipment will be tomorrow’s old hat
It’s the flexible who prosper, and not by hanging on the old equipment

As any accountant will tell you