Hard pressed tradesmen could do well to consider leasing now that the rate of VAT has increased to 20%.

Leasing has been a popular finance option for some time but the recent increase in VAT has made it an outright winner for sole traders and SME businesses from a cash-flow point of view.

Let’s look at a comparison in the cash required to either lease or buy a piece of machinery, equipment or commercial vehicle costing £20,000 plus VAT.

First let’s calculate the cash required to buy the item using a typical Hire Purchase agreement where you are required to pay a 10% deposit plus the VAT on the cost of the goods:

10% deposit £2000
VAT on cost of goods £4000
Total cash required £6000

Now let’s calculate the cash required to lease the item where you are required to pay three months rental in advance plus the VAT on the rentals.

3 x month rental £2018
VAT on rental £403
Total cash required £2421

It is worth bearing in mind that this is a cash-flow advantage, not a tax saving. But of course we all know that Cash is King when it comes to starting a business and even more critical if you want to keep one going.

If you are starting a business, an established SME or a franchisee then why not visit www.telelease.com to find out more about the cash-flow, VAT and Corporation Tax implications of Leasing and Hire Purchase.