If an asset is purchased outright or via a finance lease, it will be subject to capital allowances. Capital allowances rules do sometimes change from year to year. Details can be found in the Tax Centre section of our website. However, in the tax year 2010/11 up to £100,000 is available for the 100% annual investment allowance, which decreases to £25,000 in 2011/12. Please ensure that you check current rules and whether your assets qualify before making any decisions based on tax impact.
This is a great advantage to finance leases over purchase leases, as the business may be able to claim 100% of the cost of the asset in their tax calculation before it has been fully purchased. This has been particularly popular for van purchases and environmentally friendly cars which also attract the 100% rate.
As per the above example, the finance lease would receive £10,000 capital allowances to reduce their tax bill; however, the operating lease would only be able to use the operating lease payments to reduce their tax bill.
If your business is looking to acquire assets it is a good idea to check the tax implications before year end. For example if your year end is June 2012, and you know that at some point in 2012 you would like to buy a new van, it may be worthwhile purchasing before 30th June 2012 to ensure you get the tax benefit in the year ending June 2012 if you have taxable profits.
The above is just a general guide and introduction; please do review large purchase decisions with your finance director and/or accountant to consider all options, including the VAT differences.