Why You Should Lease Your Business IT
Written by Steve Smith, 9 October 2017
We are all becoming ever more comfortable with the “as a service” model in our personal lives. We tend not buy mobile phones, but pay a monthly contract and the phone is included as part of that. Ownership of the mobile phone is not important. Access to it, when we need to make a call or send a message is.
For many of us, the same is true with cars. Leasing deals and Contract Hire are common place these days, where we agree to a fixed monthly cost and in return we get a brand-new car every two or three years.
The IT Blind Spot
It’s exactly the same for modern businesses; we lease our office premises, company branded vehicles, even photocopiers and water dispensers. So why do we not employ similar logic when it comes to replacement IT equipment?
Many businesses simply don’t have the available budget when it comes to replacing ageing server hardware and so their business suffers as a result. Perhaps through slower performance, weaker security, or even constant hardware failure, all very frustrating to businesses, but also potentially damaging to their brand.
Leasing for IT hardware has been around for years and it allows businesses to hold on to their cash budgets and finance their server replacement over a set period of years, it’s not right for every business, but it makes perfect sense for many.
Get Your Money's Worth
If a business purchases IT equipment outright, the natural tendency is to “get your money’s worth”, generally meaning using the equipment well past it’s effective useable life.
If the equipment is leased though, it can still be purchased at the end of the lease period for a fraction of the initial capital cost, or it can be replaced with up to date equipment on a new lease. Leasing is a route that more and more businesses are opting for.
It takes only a few minutes to produce a lease contract and the entire process is usually fast and hassle free. It really is that simple and can be very flexible.
The Economics of Cost
Lease rentals are also 100% allowable against pre-tax profits. The total cost of your purchase, both capital and interest can be offset against tax during the lease period, with the lease payments deducted as a trading expense.
Example: £5,000 lease over three years:
- Lease at £157 per month
- Total payable is £157.60 x 36 = £5,670 (of which £670 is interest)
- Assuming a tax rate of 20%
- £5,670 x 20% = £1,134
In this example the £1,134 reduction in tax liability, more than covers the chargeable interest of £670.
Today’s businesses pay for Office 365 on a monthly basis, the same with IT support contracts, security software and even backup software, all billed monthly these days.
Do you really need to “own” your IT equipment, or just have access to it?
Get in touch to find out more about how Shackleton can help you get more out of your IT.
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