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Lease v Buy Example |
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Company A is looking to purchase new equipment for its business. The
supplier has offered them two options, either to buy the equipment
outright or to utilise a lease option. |
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ASSUMPTIONS |
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Equipment Price: |
£7,000.00 |
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Lease Period (yrs): |
3 |
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Company's Tax Rate: |
30% |
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Frequency: |
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Monthly |
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CASH PURCHASE |
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Tax relief is only available on the capital allowances on the equipment |
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Year |
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Capital Allowance |
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Tax Relief |
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1 |
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25% |
of |
£7,000 |
= |
£1,750 |
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Less |
30% |
= |
£525 |
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2 |
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25% |
of |
£5,250 |
= |
£1,313 |
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Less |
30% |
= |
£394 |
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3 |
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25% |
of |
£3,938 |
= |
£984 |
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Less |
30% |
= |
£295 |
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Total tax relief: |
£1,214 |
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LEASE RENTAL |
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Tax relief is available on all rentals in this case at a rate of 30% |
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Year |
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Capital Allowance |
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Tax Relief |
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1 |
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12 |
rentals of |
£242 |
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Less |
30% |
= |
£871 |
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2 |
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12 |
rentals of |
£242 |
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Less |
30% |
= |
£871 |
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3 |
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12 |
rentals of |
£242 |
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Less |
30% |
= |
£871 |
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Total tax relief: |
£2,613 |
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EQUATES TO: |
Cash Purchase |
Lease Rental |
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Total tax relief: |
£1,214 |
£2,613 |
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By choosing to lease, Company A would gain £1,399
on tax relief when compared with a cash
purchase. |
Figures complements of Tower Leasing
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