Key Post: Buy or lease?

I'm a sole trader in the grass cutting business and will be buying new cutting equipment in the coming months.
I will be investing approx 15-20K and am wondering is it financially better to buy the equipment outright or to lease it,I have the funds at hand to buy outright.Are their better tax reasons for leasing the equipment.
Also,I am not presently registered for VAT but will have to register next year as I have exceeded the VAT ceiling.

Re: Which is better,buy equipment outright or lease

are your customers VAT registered or is it private grass cutting you do? if your customers are VAT registered then you being VAT registered should not cause any problems with price competiveness etc. In that case I would register for VAT ASAP so that you can claim back the VAT therefore reducing the cost of your equipment by (presumably) 21%. Talk to your accountant in any case as it might make sense to register now regardless.

with regards to purchasing the equipment obviously there is a cost involved in leasing so this must be considered.

From a tax perspective you get capital allowances at a rate of 12.5% per annum over 8 years if you buy outright.

If you lease you will get the tax relief over the term of the lease (3 / 4 / 5 years). Numerous things need to be considered (e.g. tax treatment when lease in finished) so I think that a chat with the accountant is in order.

Re: Which is better,buy equipment outright or lease

Thanks DaveCork for advice.unfortunately most of my customers are private customers and therefore not VAT registered.I will either have to absorb the 13 % VAT or add it on.I have spoken to my accountant about registering for VAT and will have to do so.

Re: Which is better,buy equipment outright or lease

You are better off buying the equipment outright. With a lease you are effectively tying yourself into a fixed rate loan without really owning the equipment. If you want to change the equipment after two years, you will find it difficult to get out of the lease and most people end up taking out a new lease on the upgraded equipment.

The only small argument against this is that you will pay the VAT up front now on the entire price and you will not be able to claim it back. You will be able to reclaim the VAT on the lease payments from when you register for VAT.

Re: Which is better,buy equipment outright or lease

Thanks Brendan.Thats pretty much what my accountant advised.With the nature of the business I will probably end up trading in the equipment after 2 years,so it looks like I should buy outright.
I'll definitely register for VAT before buying,I have between now and the start of the new season next March

Re: Which is better,buy equipment outright or lease

Also if the equipment is bought cant depreciation be written off against profit therefore pay less tax on profit?