UK SMEs are seriously affected by extremely low rates of Annual Investment Allowance and Capital Allowance, and there is no expectation for the government to rectify this. Due to the continuous effects of inflation relatively decreasing these fixed allowances year on year, and the low rates themselves, it is no surprise that more and more SMEs are opting to lease their computer hardware and software. In this article we explain the tax benefits of leasing computer hardware and software.
Advantages of leasing
Leasing offers a number of advantages, chief of which is companies can conserve cashflow by not having to pay a large sum of money upfront. However, it also removes the risk of getting caught with obsolete equipment which frequently needs updating, and provides a firm with a huge amount of flexibility in the software and hardware required as the business grows, develops and changes.
For SMEs, however, one of the most important and frequently cited reasons for leasing equipment is the huge tax benefits it brings.
Most people don’t realise that all lease payments are counted as rental payments in a firm’s accounts, and therefore are completely allowable against pre-tax profits. This is unlike all other means of acquisition such as cash purchases, for which only 18% of the cost can be offset against tax in the first year. Ultimately, this means that the total cost of leasing can be offset throughout the entire lease period, and all payments can be deducted as normal trading expenses.
The table below shows just how efficient and effective leasing is in comparison to an initial cash purchase of £10,000:
Cash Purchase Computer Lease Plan
Cost: £10,000 – paid Day 1 Year 1 Rentals: £1045 per quarter (Payable over 12 qtrs)
Year 1: £10,000 x 18% = £1,800 Year 1: 4 qtrs x £1020 = £4,080
Year 2: £6,000 x 18% = £1,080 Year 2: 4 qtrs x £1020 = £4,080
Year 3: £4,500 x 18% = £810 Year 3: 4 qtrs x £1020 = £4,080
Tax Allowable Expenditure After 3 years = £3,690 Tax Allowable Expenditure After 3 years = £12,240
Therefore, in the example above, leasing all the hardware and software provides a tax advantage of £8,550 – a significant amount of money. The tax benefits of leasing can be realised for all types of hardware and software, and have the additional benefits of allowing the firm to receive an even spread of tax relief rather than the peaks and troughs that may result from cash purchases. The consistency of relief from leasing means that the firm is able to plan and manage their accounts far more easily.
There are a huge number of benefits gained by leasing computer hardware and software, and the additional tax advantages are the most prominent of these for SMEs, which explains the growing number of firms choosing to make the most of these rewards.
Tax benefits of leasing computer hardware and software – where to find out more
If you’d like to discuss leasing computer hardware and software for your business, please get in touch today.
Read our section on technology finance here.
Tower Leasing continue to build and develop relationships to provide our customers flexible and tailored finance solutions. We have secured funding for over 30,000 SMEs looking to improve cash flow, secure assets and business growth, ultimately giving them a boost within the UK economy. We provide our customers with an exceptional service through our knowledge, efficiency and experienced team of people, overcoming their challenges and create opportunities for business success. We are proud to have demonstrated business intuition and by achieving the Business Champion status from Funding Circle, continue to build a strong relationship for many years to come.
Stephen Yearwood, Business Development Manager, Funding Circle said, “Funding Circle are proud to have Tower Leasing Ltd join our selective panel of Business Champions. This is a testament to the good quality of clients introduced to us over the years and the extensive knowledge they have on Funding Circle. Stephen, Rishi and the team at Tower are an absolute pleasure to work with and we look forward to strengthening our relationship moving forward.”
Stephen Jenkins, Head of Direct Sales, Tower Leasing Ltd said, “We have been working with Funding Circle for some time now and are delighted to have been designated as one of their “Business Champions”. This means a great deal to us as we strive to give the best possible service to our clients, and this award reflects that commitment. This is the result of hard work and effort from the Direct Sales team here at Tower and we look forward to working with Funding Circle for the long-term.”
The Key Benefits of being a Business Champion:
• Tower Leasing are recognised for our product knowledge and high level of accuracy and efficiency.
• Tower Leasing meets the programme’s customer satisfaction criteria: we know when Funding Circle is the right product for our clients.
• Tower Leasing has the experience and long – term relationship with Funding Circle that now provides our clients the best possible chance of completing a loan application.
To find out more on how you can secure funding through Tower Leasing, speak to our direct sales team on 01753 837 077 or email email@example.com
UK lessor and broker Tower Leasing has opened an office in Belfast, Northern Ireland and has recruited a former Grenke account manager to lead the operation.
Trevor Phelan will focus on expanding Tower’s dealer base and developing new and existing relationships with equipment suppliers and direct sales customers across Northern Ireland and the Republic of Ireland.
Working in sales for over ten years, Phelan has represented Nestle, Schwarzkopf, Asics and most recently Grenke Leasing as a direct sales and regional account manager.
Tower provides finance directly via their own book facility and has longstanding relationships and access to a large panel of lenders for leasing, for assets such as IT, office equipment & furniture, telecoms, vending, security, electronic point of sale equipment, catering and other equipment.
The British Business Bank (BBB) created a £25.5m (€28.6m) credit facility for Tower Leasing in January.
At the time the lessor said the funding would enable it to extend additional asset finance packages to a diversified smaller businesses base.
Tower said its sector provision in Northern Ireland and the Republic of Ireland would support businesses in agriculture, construction, MOT & vehicle servicing, leisure & hospitality, medical & veterinary, manufacturing, media, retail, public & charity, IT, transport & logistics and other professional services.
Phelan said: “I am delighted to be part of the continued success of Tower Leasing, in assisting customers in acquiring new equipment to help drive their businesses forward and also enabling our partners and resellers to grow and maintain that all-important competitive edge in challenging markets.”
Ben King, Tower Leasing sales manager: “We are delighted to have added Trevor to the Tower Family – it is great to finally have some feet on the ground within Ireland.
“Trevor’s knowledge and experience will support our presence and allow us to explore new opportunities whilst building new and strong relationships; we believe that this shows further commitment from Tower Leasing in respect to assisting business growth in all areas of the UK.”
Source: Leasing Life
Research from the British Business Bank Small Business Finance Marketsreport has shown that asset finance and leasing is competing well against other products in the small business market.
The value of SME asset finance deals (up 12%) and peer-to-peer business lending (up 51%) in 2017 both showed strong growth.
Data from the Finance and Leasing Association (FLA) suggests that new asset finance volumes with smaller businesses was over £18.6bn by the end of 2017, an increase of 12% on 2016.
Although net bank lending volumes remained positive (£0.7bn) in 2017, they were weaker than in both 2016 (£3bn) and 2015 (£2bn). Significant increases were seen in 2017 in both the value and number of SME equity deals (up 79% and 12% respectively).
The report finds a decline in smaller business confidence and low demand for external finance is becoming entrenched as their cash balances rise. Bank analysis finds that, over the last ten quarters, only 1.7% of smaller businesses sought new loans, a record low since the SME Finance Monitor began in 2011.
Less than half (43%) were confident they would get a loan if they applied, even though most new loan applications (72%) are approved. Moreover, 70% of SMEs are willing to forgo growth rather than borrow, continuing a trend identified in last year’s Small Business Finance Markets report.
Total invoice & asset-based lending advances to smaller businesses continue to rise and across all sizes of smaller businesses, the BBB found.
Data from the report has shown that the number of new loans among small firms has dropped to its lowest level since 2011.
Keith Morgan, British Business Bank chief executive, said: “A core objective of the British Business Bank is to encourage greater diversity of finance, so we welcome the growth in the uptake of equity finance and other alternatives to traditional lending.
“It can’t be overstated how important it is to build a more complete funding ladder for economically important high-growth businesses no matter where they are located. Scale-ups need more long-term patient capital throughout all stages of their development to be world-beating companies, and we look forward to using our new resources allocated at Autumn Budget to unlock more of this type of capital.”
Federation of Small Businesses (FSB) National Chairman Mike Cherry, said there were positives in the report for the wider SME lending sector, especially in London and the South East.
Cherry said: “But the fact that less than 2% of UK small firms sought new loans over the last couple of years is a real concern. We’re lagging behind the US when it comes to venture capital investment in businesses to the tune of millions. That has to change.
“Lots of small firms simply aren’t up to speed on all of their options. Increasing numbers are applying for asset-based loans and exploring the P2P route which is encouraging.
When it comes to equity finance, many small businesses are hesitant about selling a stake in their firm, even though it could be the right move for them. Small firms will often start their finance journey by speaking to the bank they’ve always dealt with, leading them down a more traditional debt route that won’t suit everyone.
“There’s also the issue of low awareness when it comes to government support. More than two-thirds of firms aren’t aware of the Enterprise Investment Scheme, for example.
“The £2.5bn handed to the BBB in the Autumn will be vital to helping tackle these issues. With Brexit edging ever closer, we’re set to lose hundreds of millions in small business support from EU funding streams. We need to see further guarantees from the Chancellor that small firms won’t lose out.”
Simon Goldie, head of asset finance at the FLA, said: “The 12% growth in asset finance new business that went to SMEs in 2017 demonstrates that leasing and hire purchase are vital sources of funding for these businesses.
“Improving the growth and productivity of smaller businesses is critical to the economy, so we welcome the BBB’s plan to stimulate demand for funding by introducing a new digital information hub in Spring 2018. The knowledge-gap in business funding has persisted for too long, and continues to hamper firms in their search for the right finance product.”
Source: Leasing Life
The Financial Conduct Authority (FCA) has launched a consultation on plans to give more small businesses access to the Financial Ombudsman Service (the Ombudsman).
This follows a review of the protections available to small and medium-sized enterprises (SMEs) as users of financial services.
The FCA said at the moment only individual consumers and around 5.5m micro-enterprises (the smallest type of business) can access the Ombudsman if they have a dispute with a financial services firm.
Businesses that cannot access the Ombudsman would need to take the firm to court. However, the FCA believes that many smaller businesses within this group struggle to do so in practice.
Under the changes proposed by the FCA, approximately 160,000 additional SMEs, charities and trusts would be able to refer complaints to the Ombudsman. This would be done by changing the eligibility criteria to access the Ombudsman, so businesses with fewer than 50 employees, annual turnover below £6.5m and an annual balance sheet (i.e. gross assets) below £5m would become eligible.
As long as a complainant is eligible, the Ombudsman can consider complaints about any regulated activity; it can also consider complaints about some unregulated activities, such as lending to companies or the activities of business turnaround units.
The FCA also proposed to extend eligibility to personal guarantors of corporate loans, provided the borrowing business also meets the eligibility criteria.
The consultation comes off the back of the widely-publicised saga in the mainstream and trade press concerning RBS and its Global Restructuring Group, wherein it was alleged that RBS deliberately mistreated its SME business customers.
Andrew Bailey, chief executive at the FCA, said: “It is important for everyone, including financial services firms, that there is an effective dispute resolution mechanism for businesses. Our evidence suggests some small businesses currently find it hard to achieve a fair outcome in disputes with financial services firms because court action is not a realistic option for them. We have considered what could be done within our powers and the remit of the Financial Ombudsman Service to improve this situation and are proposing to expand access to the Ombudsman.”
The FCA proposals focus on the Financial Ombudsman Service because of its expertise in the financial services sector and the FCA’s statutory role in relation to it. More material changes, such as changing the basis for the way the Ombudsman makes decisions to enable it to deal with significantly higher value disputes, would require legislation, which only the Government can introduce.
The FCA is asking for responses to the consultation by 22 April 2018 and intends to publish a Policy Statement making final rules in summer 2018.
Source: Leasing Life
ENABLE Funding programme facility will give Bracknell-based Tower Leasing access to a £25.5m line of asset finance
The British Business Bank has announced that it is providing a £25.5m facility to Tower Leasing. The transaction, made under the Bank’s ENABLE Funding programme, will allow Tower to provide additional asset finance to smaller businesses looking to acquire business critical assets to boost their growth.
Bracknell-based Tower Leasing, with a regional office in Tamworth, was founded in 1989. It has extensive experience in providing finance to smaller businesses all over the UK, with a particular focus on finance leases for business and office equipment. The new facility announced today will allow Tower Leasing to grow and diversify its funding base.
Bernie Skivington, Director, Guarantee & Wholesale Solutions at the British Business Bank, said:
“Our ENABLE Funding programme is an important part of our support to smaller asset finance providers like Tower Leasing as they scale up their lending to smaller businesses, helping them invest in the equipment they need to grow and succeed. This latest transaction is another great example of how we are increasing both the amount and diversity of funding available to these smaller finance providers.”
Kerry Howells, Chief Executive Officer at Tower Leasing said:
“Tower Leasing are delighted to announce that we have secured a new funding facility via the British Business Bank Plc ENABLE programme. Lending to SMEs runs through Tower’s DNA and the ENABLE funding represents a significant milestone in Tower’s development. The facility supports our aspirations for continued growth and to broaden our offering, gaining further traction into the SME marketplace.”
As part of British Business Bank’s key objective to diversify finance markets for smaller UK businesses, the ENABLE Funding programme helps smaller providers of business finance to do more. These providers often lack the scale required to access capital markets – a key source of funding for lending institutions – in a cost-efficient manner. ENABLE Funding warehouses newly-originated finance receivables from a number of smaller business finance providers.
Source: British Business Bank