A Company wishes to buy a new item of equipment. The supplier has offered the company two options, either to buy the equipment outright for cash or to use leasing.

Assumptions:

Equipment Price:       £5,250

Lease Period:            3 years

Frequency:                 Monthly

Company's Tax Rate: 30%

Cash Purchase
Tax relief is only available on the capital allowances on the equipment.

Year	Capital Allowance	Tax Relief
1	25% of £5,250   = £1,312.50	Less 30% = £393.75
2	25% of £3,938   = £985.00	Less 30% = £295.50
3	25% of £2,954   = £739.50	Less 30% = £221.85

Lease Rental
Tax relief is available on all rentals, in this case at a rate of 30%.

Year	Rentals Paid	Tax Relief
1	12 rentals of £178.50	Less 30% = £642.60
2	12 rentals of £178.50	Less 30% = £642.60
3	12 rentals of £178.50	Less 30% = £642.60

Equates to:

By choosing to  lease, the company would gain over £1,016.70 more in tax relief when compared with a cash purchase.

Assumtion that company can claim the Full Rate Corporation Tax.

This is for  example purposes only.

Always consult your professional advisors.

E&OE