More Tax Efficient to Lease or Buy Business Laptops?

Q.

I'm trying to asses which is the best option and most cost effective in terms of tax etc. Either:

• Buying an extra laptop for my business

or

• Leasing one on a 3 year term

I tried contacting the inland revenue about this issue for advice but struggled to find anyone who could answer. Any advice would be appreciated.

A.

Leasing

An entrepreneur who leases business laptops can offset the payments against taxable profit in full. HM Revenue & Customs does not impose any conditions on the leasing payments, or the amounts. In other words, leased business laptops are a legitimate trading expense for tax purposes.

Lease payments do, of course, attract VAT. To enter a leasing agreement, and to claim back the VAT, an entrepreneur must usually have a VAT registered business.

Leasing business laptops also has other advantages.

For example, leasing prices start at around £6.00 per week over a three-year period for a business laptop. As a result, there’s no need for an entrepreneur to commit large amounts of money at the start of a business to obtain up-to-the-minute IT.

Furthermore, most leasing companies offer entrepreneurs the chance to upgrade during the course of a leasing agreement. If keeping up with the latest laptop technology is important for a business, this is a useful option.

Finally, with an operating lease arrangement, the leasing company retains responsibility for insurance and maintenance of the laptops.

Buying

Start-up businesses have a £50,000 tax allowance for buying new equipment such as business laptops. HM Revenue & Customs refer to this allowance as the AIA (annual investment allowance).

In following tax years, there’s a capital allowance of £1,000. Above this amount, an entrepreneur must spread the cost of the business laptops over a period that matches the expected life of the computers.

It’s therefore possible to buy business laptops outright and recover the cost within the first trading tax year or over time. An entrepreneur can also claim back the VAT.

Tax Efficient Options

Leasing and buying business laptops are both tax efficient options. An entrepreneur is not out of pocket either way from a tax viewpoint.

From a general financial perspective, leasing is more expensive. On the other hand, it has the benefit of freeing up capital. It’s also separate from bank loans and other credit arrangements.

The final decision to lease or buy therefore depends on the circumstances of an entrepreneur and his or her business.