Leasing CCTV & Security Systems
These days, this is an area that nobody can afford to ignore. With more companies looking to protect their premises and contents from theft, fire and other losses, customers are no longer asking why they need it, but rather why they should come to you. Of course the proof of the pudding is in the eating. Leasing allows you to demonstrate over a set period of time just why using it to finance equipment is a more economically viable option to using other means.
- Making your world a safer place
- Protecting your peace of mind
- Burglar alarms, CCTV all available for leasing
Investing in equipment via lease finance as opposed to cash purchase does yield some exciting advantages, none more so than the tax relief your customers will receive on their lease rentals.
What is this ‘Relief’ they will receive?
When a customer lease equipment, they are able to gain tax relief on 100% of their lease rentals against their corporation tax.
What does this mean and what is Corporation Tax?
Corporation Tax is the tax applied to your customers’ profit at the end of their financial year and this is generally between 20% – 24%.
For every lease rental a customer pays, they are able to claim 20% – 24% in tax relief against their corporation tax, so they are able to keep their cash in the company and not with the HMRC.
I’m still not sure how this will benefit my customer?
To demonstrate the above, please see the following example.
Customer A makes £100,000 profit in their financial year. Customer A than has to pay Corporation Tax of 20% on this profit, this works out to:
£100,000 profit minus 20% Corporation Tax = £80,000 profit after tax
The tax they will have to pay is £20,000
Customer B makes £100,000 profit for their financial year. Customer B has to pay Corporation Tax of 20% on this gross profit. Customer B also has £10,000 worth of lease rentals for the year.
£100,000 gross profit minus £10,000 lease rentals = £90,000
£90,000 minus 20% Corporation Tax = £18,000
So Customer A pays £20,000 in tax and Customer B pays £18,000 in tax. Customer B has saved £2,000 in tax.
If my customer paid cash for the equipment, will they still receive tax relief?
They will receive tax relief in the form of Capital Allowances. When purchasing equipment via cash, they will commonly receive a percentage of Writing Down Allowance as Capital Allowance.
What is ‘Writing Down Allowance’?
The Writing Down Allowance is a percentage of the value of the equipment they own of which they can claim capital allowances on.
Just like leasing, the tax relief they can claim is set against their corporation tax. The only difference is how much they can claim.
As the writing down allowance is based on a piece of equipment that will devalue in price the longer they own it, as a result the tax relief will decrease.
The writing down allowance is set at 18% and the customer is able to claim between 20% – 24% against their corporation tax.
I’m confused, what does this mean?
I am not surprised and the below explanation may help.
If a customer pays cash for a new £7,500 security system, at the end of their first financial year, they can claim ‘20% in tax relief’ of ‘18% of the value of the equipment’, which is as follows:
18% of £7,500 is £1,350. Of this £1,350 they can claim 20% against their corporation tax which is £270.
At the end of the second year, the tax relief they can claim will be lower as the equipment has been devalued by 18%.
The new value of the equipment is £7,500 minus £1,350 which equals £6,150.
Of this is £6,150, they can claim ‘20% in tax relief’ of ‘18% of the value of the equipment’, which is as follows:
18% of £6,150 is £1,107. Of this £1,107 they can claim 20% against their corporation tax which is £221.40.
Over a two year period, your customer has gained £491.40 in tax relief.
Is it not better for my customer to pay cash rather than having to lease the equipment?
If you look at the diagram below which compares the tax relief your customer would receive if they paid cash rather than leased it, then your answer could be no.
Equipment Price: £7,500
Lease Period: 3 Years
Company’s Tax Rate: 20%