– it’s a scary thing to do at the moment.
The majority of businesses have survived since 2008 by cutting costs and waste and hanging in there, occasionally there has been a cash injection or a fortuitous sale but most have drawn their horns in and hunkered down.
That was six years ago and now is the time to invest, modernise and move forward but with so many demands on what is probably a shrunken pot what can you do about it?
I was talking to a good friend of mine who is in the Office Equipment businesses. They have plenty of quotes out there which will bring in £millions but no one is taking any decisions.
Its all down to fear, not only is the money pot smaller but there are so many ways to spend it and we have been trained in the last six years not to take a gamble. Couple that with the fear of interest rate rises and you have investment stagnation. The Chancellor knows this which is why he put investment relief so high up his agenda.
The ideal situation would be to borrow some money, but getting a fixed rate loan at a low interest rate is difficult and it hits the cashflow. You will also be paying for it long after the capital allowances have worn off, and when was a fixed overdraft ever available?
Using an old idea
Many years ago we used to offer equipment on a lease. It was tax efficient, spread the cost and it was yours at the end of the term.
You see leasing is simple. You arrange the lease now, and the rates don’t change until the lease is ended so you know what you are laying out each month. The interest rates are low as they are based on the rate now unlike bank overdrafts which vary. So the cashflow is organised and you know what you are paying out.
That’s why we are offering lease / rental again.
Is it yours?
In a word no, but it will be at the end. You pay a figure, lets say £36.10 a week in monthly or quarterly instalments for equipment that costs £8,000 and at the end of the period 5 years the lease is at an end. We don’t want the kit back and neither does the leasing company, but you probably want to go on using it, so we buy it back off the leasing company and sell it to you for a quarters payment. That’s £469.30. Its known as residual buyback.
Claim the most against TAX?
Because you don’t own it you can’t claim capital allowances at 20% – You can claim 100% of the cost instead! If you buy and own equipment outright then you get 20% capital allowance in the first year and then depreciation on it after that. Because you are paying for a lease the whole amount is claimable.
When the lease has ended you can claim the Capital allowance of the purchase price which is 20%, remember the £469.30? well £93.86 can be claimed back against tax and then a percentage after that.
Here is the maths based on the figures we have quoted.
|Total equipment cost||£8,000|
|Repayments over five years||£9,386|
|Less amount saved from tax||£1,877|
|Saving from 2% inflation||£195|
|Total cost of system||£7,314|
Now the same but with an outright purchase and capital allowances
|Total equipment cost||£8,000|
|Less Capital allowances over five years||£945|
|Plus loss of interest (8k @ 4%)||£1,733|
|Total cost of system||£8,788|
That’s a saving of £1,474 or 18% on the purchase price and you haven’t had to find £8,000 up front.
This is just an example, the more you spend obviously the more you save and of course its all subject to status.