An example of finance lease v outright purchase
| |
Amount
(£) |
Allowable
(£) |
Rate
(%) |
Tax Saving
(£) |
| Year 1 |
10,000 |
5,000 |
30 |
1,500 |
| Year 2 |
5,000 |
1,250 |
30 |
375 |
| Year 3 |
3,750 |
937.50 |
30 |
281.25 |
| Year 4 |
2812.50 |
703.13 |
30 |
210.94 |
| Year 5 |
2109.37 |
527.34 |
30 |
158.20 |
| |
|
|
Total: |
2525.39 |
Cash Example
Cost = £10,000.00
Rate = £70.00
Customer paying tax at 30%
CASH: Customer claims 50% written down allowance in the first year and 25% there after against the rate of tax on reducing scale.
| |
Amount
(£) |
Allowable
(£) |
Rate
(%) |
Tax Saving
(£) |
| Year 1 |
2800 |
2800 |
30 |
840 |
| Year 2 |
2800 |
2800 |
30 |
840 |
| Year 3 |
2800 |
2800 |
30 |
840 |
| Year 4 |
2800 |
2800 |
30 |
840 |
| Year 5 |
2800 |
2800 |
30 |
840 |
| |
|
|
Total: |
4,200 |
Leasing Example
Cost = £10,000.00
Rate = £70.00 £700 per qtr £2800 + VAT per year
Customer paying tax at 100%
CASH: Customer claims 100% of rentals against tax.
Total rentals £2800 x 5 = £14,000 less taxable savings = £9,800 + VAT
This shows that a lease option for companies paying corporation tax outweighs outright purchase.
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