Leasing could help reduce tax liability
A proposed cut of 75,000 in the annual investment allowance is expected to make finance leases and operating leases more attractive than either hire purchase or cash as a means of financing new machinery investments, believes David Walton, Head of Agriculture at SG Equipment Finance Ltd.
Affecting all businesses investing in plant and machinery, the change will reduce from 100,000 to just 25,000 the amount of capital expenditure that can be offset each year against taxable income
The result is likely to increase the amount of tax paid by profitable businesses investing more than 25,000 in a year in machinery or equipment, hitting those who use hire purchase or cash to fund new investments above this level, points out Mr Walton. Using cash, the only tax allowance that will be available above 25,000 will be the annual writing-down allowance which is set also to fall from 20 per cent to 18 per cent from 2012.
With hire purchase, it is solely the interest element of the repayments that is allowable against tax unlike finance leases of less than 60 months and certain other operating leases where up to 100 per cent of the repayments are treated as an allowable business expense, helping reduce the tax bill of profitable operations.
However, in order to maximise the potential tax-saving benefits of leasing, machinery buyers who have traditionally used cash or hire purchase to acquire new machines will need to adopt a different attitude to machinery investment, acknowledges Mr Walton.
They will have to accept that finance leasing never confers ownership of a machine, he says. Although you can use it just like any machine that you own and you can even benefit from the sale proceeds, if required, it may not appear on your balance sheet.
That said, I have yet to find any machine or piece of equipment that worked any harder for you because you own it. The ability to accept this fact could be worth quite a lot of money in terms of lower tax bills and we advise anyone who needs more information or advice to consult their accountant or to contact SG Equipment Finance who are well equipped to assist machinery and equipment buyers with future investment planning.
A subsidiary of Socit Gnrale, SG Equipment Finance (SGEF) is a leading European financial services company with offices in 24 countries around the world.
Based in Richmond, Surrey, SGEFs UK operation provides an extensive range of finance products to customers that include farmers, growers, contractors, grounds care professionals, machinery manufacturers, distributors and dealers.
SGEF is represented in the field by a network of trained and knowledgeable independent brokers, all of whom are equipped to advise customers on the SGEF finance product most appropriate to their needs and to arrange SGEF-funded advances.