What is tax relief?
Tax relief is the amount of money your business corporation tax bill can reduce by. If your business makes a profit of £25,000 and your corporation tax rate is 20% that means that a corporation tax liability will arise of £5,000
How does tax relief with leasing reduce corporation tax?
If during the tax year your business spends £3,000 on leasing equipment then instead of paying 20% corporation tax on £25000 you would only pay 20% of £22,000 i.e. £4,400. Therefore the corporation tax liability would reduce by £600 But are there tax allowances if equipment is purchased outright? Yes, these are called Capital Allowances and are received as Writing Down Allowances or the amount of depreciation permitted by the Inland Revenue on equipment purchases.
What is a Writing Down Allowance?
This is the percentage that can be claimed against equipment purchases as a capital allowance and is currently fixed at 18%. You would be able to claim, on a reducing balance basis, against your corporation tax at the rate you pay.
This all seems very complicated!
Talking about tax is never easy. Perhaps the following will help. Using the earlier example in the Lease V Buy section, equipment purchased for £8250.00 + VAT over 3 years with monthly payments of £284.63 would attract allowances as follows: