As a wise man once said, ‘if it appreciates, buy it, if it depreciates, lease it’. Leasing of equipment, particularly that which is expensive or likely to require future upgrades is a sensible means of financing within most businesses. However, making sure that these lease payments are tax-deductible is essential in making sure that your business is as profitable as possible.
Determining whether lease payments are tax-deductible or not is something you should consult with an accountant or tax adviser on before making any decisions. In the meantime, the following should give you some general guidance and advice.
Capital or revenue equipment
The first thing to consider is whether or not the equipment is classified as capital or revenue equipment. Capital equipment is generally seen as more long-term, and revenue equipment is seen as more short-term. HMRC has specific guidelines on what constitutes capital and revenue equipment.
In general, payments for capital equipment are not tax-deductible, while payments for revenue equipment are tax-deductible. However, there are a few exceptions to this rule. For example, payments for equipment that is classified as mixed-use (both capital and revenue) may be tax-deductible.
Another thing to consider is the depreciation of the equipment. Generally, depreciation can be claimed for capital equipment, but not for revenue equipment.
There are also specific rules about how equipment lease payments can be claimed as a business expense. In order to claim the payments as a business expense, the equipment must be used solely for business purposes. The equipment must also be on the company’s balance sheet, and the lease agreement must be in writing. If all of these criteria are met, then the equipment lease payments can generally be claimed as a business expense. This will reduce your company’s taxable income, and may result in a tax refund.
To summarise, while you may be able to determine whether or not specific equipment lease payments are tax-deductible by researching the latest guidance from HMRC online, it is always worth consulting with a professional before committing to any long term contracts.
Equipment lease payments – find out more
Leasing is a very cost-effective way to invest in business equipment. In addition to its many benefits this option competes very well in simple monetary terms. Read our guidance and look at our lease vs buy example, which shows a tax relief saving of over £1,000. Or get in touch with us to discuss how we may help you with equipment leasing.