Tax Benefits of Equipment Leasing for Self-Employed Tradesmen

Understanding Capital Allowances

When you buy equipment outright, you can claim capital allowances to reduce your tax bill. The Annual Investment Allowance (AIA) lets you deduct 100% of qualifying equipment costs from profits, up to £1 million per year.

However, many tradesmen don't have the capital to buy equipment outright - which is where leasing offers an alternative tax-efficient route.

Tax Benefits of Leasing

With an operating lease, the entire monthly payment is usually tax-deductible as a business expense. This can provide significant tax savings, especially for higher-rate taxpayers.

The equipment stays off your balance sheet, which can help if you need to borrow money elsewhere. You also avoid the hassle of calculating depreciation and claiming allowances.

HP vs Lease: Tax Comparison

With Hire Purchase, you can claim capital allowances on the equipment cost, plus deduct the interest portion of payments. You'll own the asset at the end.

With a finance lease, the tax treatment depends on how it's structured. An operating lease usually offers simpler tax treatment with fully deductible payments.

Consult your accountant to determine which option works best for your specific situation.