Equipment Leasing

thomas98798

Hi everyone,
I'm planning on leasing equipment for my business. Should be costing me about €2,600 a year. The actual cost is a little more expensive that what it would cost to actually buy the equipment and pay it back as a loan. Can anyone explain what the tax advantages are for leasing equipment as opposed to buying it outright???

Much appreciated.
Thomas.

thomas98798

Thanks aka accounts. just sent you a pm there.

backtothebooks

aka accounts 2010 wrote: »

This sounds to me like a Finance Lease agreement.

Basically under the accounting standard IAS 17, you should capitalise the equipment in your accounts.

Your rental payments will comprise of two elements:
1. An interest charge on the finance provided by the lessor

2. A repayment of the part of the capital cost of the asset.

The accounting problem here is to decide what proportion of each instalment represents interest and what proportion represents repayments of capital. There are three methods of doing this which once understood are fairly straightforward. Method usually used in practice is "sum of the digits"

This lease interest which you would have calculated above using one of the methods is fully tax deductible.

You're confusing the accounting treatment and the tax treatment.

The annual lease payments are fully tax deductible and you won't be entitled to claim capital allowances.

From a tax perspective it doesn't matter what the split between interest and capital in the financial statements is.