When it comes to acquiring essential equipment for your business, you may be considering the options between leasing and buying outright, which can have significant financial implications. While outright purchases require substantial capital investment, leasing offers a cost-effective alternative which doesn’t just help you spread costs—it also offers significant tax advantages that can improve your bottom line.
Here we look at the tax benefits of leasing, how it can reduce your tax burden, and why more businesses are choosing this flexible approach over outright purchases.
1. Lease Payments Are Tax-Deductible
One of the biggest advantages of leasing equipment is that lease payments are considered an operating expense and are usually fully deductible from taxable income. This means businesses can reduce their tax liability while maintaining access to cutting-edge equipment.
2. Preserve Capital & Improve Cash Flow
Leasing allows businesses to avoid significant upfront payments, which helps free up capital for other important areas, such as growth initiatives, staffing, or operational expenses. This approach enables businesses to maintain liquidity while still accessing the necessary equipment rather than tying up funds in assets that depreciate over time.
3. No Large Upfront Tax Liability
Purchasing equipment outright often requires businesses to capitalise and depreciate the asset over time, limiting immediate tax benefits. Leasing, on the other hand, allows businesses to deduct lease payments as they occur, ensuring an immediate tax advantage and reducing taxable income more effectively.
4. VAT Benefits
Tax benefits of leasing also come into play when it comes to VAT (Value-Added Tax). Instead of paying VAT on the full purchase price upfront, businesses leasing equipment typically pay VAT only on their monthly lease payments, making it easier to manage tax obligations over time.
5. Avoid Depreciation Limitations
Tax regulations often impose limits on how much businesses can depreciate certain assets per year. With leasing, these concerns are eliminated since the responsibility for asset depreciation remains with the leasing provider, allowing businesses to focus on their operations without worrying about changing tax rules.
How the tax benefits of leasing work for you
When a business leases their equipment, they are able to gain relief on 100% of the lease rentals against its corporation tax. This means, for each and every lease payment made the business can claim 21%+ in tax relief against its corporation tax, keeping the cash in the company. By leveraging these tax benefits of leasing, businesses can improve their financial health and allocate resources more efficiently.
For businesses selling ICT equipment, offering a leasing option makes it easier for customers to acquire high-value assets without the financial strain of upfront costs. Not only does this help close sales more efficiently, but it also allows customers to benefit from tax savings while staying ahead of the competition with the latest technology.
At Lease ICT, we offer market-leading finance solutions with dedicated account management, instant credit decisions, and an industry-leading white-labelled portal for full partner control. With competitive rates, high approval rates (including start-ups), flexible sourcing, and fast payouts, we make leasing seamless and profitable for our partners. Contact us today to see how we can elevate your sales strategy.