Cash vs Rental
Which is Cheaper?
Example based upon equipment cost at £8,250.00
CASH
If cash is used to purchase your equipment, you can claim writing down allowances against the equipment to reduce tax.
However, by using cash, you will lose interest due to you from your bank.
Interest lost on money (assuming savings rate at 5% per annum) over 3 years:
Total interest lost = £1,300.41
Total cost, including interest lost = £9,550.41 (A)
Less writing down allowances in:
|
Year one
|
40%
|
£3,300.00 |
|
Year two
|
25%
|
£1,237.50 |
|
Year three
|
25% |
£928.13 |
Total writing down allowances over 3 years = £5,465.63
Tax assumed at 21% = £1,147.78 (B)
Total cost of buying machine as a cash purchase is therefore:
(A)-(B) = £8,402.63 |
RENTAL SOLUTION
A Rental solution allows you to spread the cost of equipment.
This means that a return on investment can be achieved from day one.
Furthermore, each rental is fixed and can normally be fully offset against
taxable profits.
Example: 3 year monthly rental at £291.75
Cost of rental over 3 years = £10,503.00 (C)
Less interest saved by keeping cash in bank = £1,300.41 (D)
Total tax allowances over 3 years = £10,503.00
(100% of each rental)
Tax assumed at 21% = £2,205.63 (E)
Total cost of buying machine using a rental solution is therefore:
(C)--(D)-(E) = £6,996.96 |
USING RENTAL RATHER THAN CASH
SAVES YOU £1,405.67 |
Disclaimer: The above examples are for illustration purpose only and
taxation examples are in line with 2006 Inland Revenue guidelines.
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