“Generally leased pods cover their monthly costs within a few days of trading”.

(These are notes from leasing company passed on verbatim, Pod303 are not a specialist financial advisor but recognise that many products are purchased through this means).

Leasing is probably the most popular method of financing new equipment today. Virtually any item of equipment can be leased from a barbers chair or coffee machine to a complete shop refit i.e. from £1000 to several hundred thousand pounds.

Should I pay cash or lease?

You may be able to afford to buy the equipment outright, but before you make this decision you must consider the following:

1. All leasing payments are rental payments and as such are an allowable business expense, therefore if a business is making profits they reduce the profit by the amount of the rentals you pay each year which in turn reduces your tax bill.

2. Lease payments are normally the same throughout the lease contract. This means that increases in interest rates do not affect you and enables you to budget your cash flow more effectively.

3. Leasing enables you to save your cash for other purchases such as new stock, staff training, advertising, new business opportunities and unexpected happenings.

Do my payments increase if Inflation or Interest Rates rise?

No. Your monthly payment is fixed at the start of the lease and so are unaffected by interest rate rises. This enables you to budget your cash flow more accurately. As inflation rises, because your payments are fixed the cost of the equipment reduces in real terms.

Is there a tax benefit associated with leasing?

Yes. A business wishing to acquire capital equipment has to seek the most tax efficient way when doing this. All lease payments are treated as an allowable business expense and therefore attract tax relief for the full duration of the lease agreement. Your accountant will be able to confirm this.

How do I make my payments!

All payments are mainly made by Direct Debit on the same date each month or quarter. Quarterly invoice payments are available on occasion although an extra charge of 2% is made by the banks for this facility.

Should I go to my bank?

Using your bank for all your business funding is not a good practice. If you use all your overdraft facilities you leave yourself in a vulnerable position to react to any unexpected needs of short-term borrowing. Your bank may change the interest rate mid-way through a loan or reduce your overdraft facilities, which can dramatically affect the cash flow of your business.
Sometimes banks will limit the amount they will lend you without further security such as taking a charge on your home. It is not financially prudent to have all you eggs in one basket.

Who Leases?

Nearly every market sector large or small benefits from leasing, from new start business to large established companies.

How does a lease work?

A lease agreement is a contract between you the customer and a leasing company. This enables you to use equipment over a period of time on payment of rentals to the leasing company. With a typical lease agreement, you make a series of regular payments (usually on a monthly basis), thus helping cash flow, as opposed to a large capital outlay for the equipment.

Have the best equipment. You normally only pay a small deposit with a lease agreement, this enables you to choose the best equipment available with only a small initial cash outlay. This enables you to have the best equipment available with the latest technology and start to enjoy the extra profits this generates before your next lease payment is due.

Tax Advantages of Leasing

Most clients use a lease to acquire their system. This is a highly tax advantageous means of purchase because every payment receives 100% tax relief.

1. The tax relief can actually reduce your overall cost
2. You don't have to endanger your liquid cash flow purchasing new equipment when you can invest in stock and increase your profits.

End of Lease

During the lease period (normally 3-5 years) you are renting the system and for that reason you are gaining your 100% tax relief. At the end of the period therefore the equipment is not your property, which means in theory you should return it to the suppliers. However in practice no one does this. We will sell on the ownership of the system for one further monthly payment, which of course is still 100% tax deductible.

Which way to go?

Unless you have the cash in the budget with nothing else to spend it on most clients will prefer the lease option.

*Capital allowances can be claimed against equipment bought outright at a value of 25% of the written down value of the goods, depreciating year on year.

Who will assist?

Pod303 do not make financial reward from any transactions nor favour one company over the other, we will gladly assist in the production of detailed quotations should they be needed. Claims made in this general information document should be clarified with your favoured leasing company.

1. Lease Direct - www.l-d-f.co.uk/leasing/index.htm

2. Kennet Equipment - www.kennet-leasing.co.uk

3. Shire Leasing - www.shireleasing.co.uk

4. Associated Commercial Finance - www.associatedcomfinance.co.uk