Figures correct as of 25.03.2024.
In today’s economic climate, where interest rates continue to rise, many businesses can be hesitant to invest in the essential IT upgrades that their businesses need to thrive, but waiting could actually hinder your company’s growth.
This is where IT financing comes in.
Why Traditional Options Don’t Work for IT
…and you should finance IT systems.
While high street lenders may initially appear to offer the best rates, their interest often lies in tangible assets, leaving IT financing somewhat in the shadows. This is where specialised IT leasing companies shine, offering slightly higher rates but with a slew of advantages that traditional financing options simply can’t match.
Why IT leasing stands out:
Commercial Mortgages and Car Finance: Offered at appealing rates (7.5-8% APR or 4% flat for mortgages, 9.95%+ APR or 5% flat for car finance), these options cater to physical assets. However, they lack the flexibility and understanding needed for IT investments.
IT Finance: Enters with rates at 6-7% flat. Though marginally higher, this option packs a punch with security flexibility, tax benefits and a deeper grasp on the essence of IT investments.
Leasing your IT equipment isn’t just a financially savvy decision for most businesses, it also opens up several tax advantages that can significantly offset the cost difference.
Operational Expenses tax relief (OpEx)
Most IT leases are classified as Operational Leases (OpEx), allowing every payment to be 100% tax-deductible. This can lead to substantial tax savings over the term of the lease.
Tax Illustration
Consider upgrading your IT systems at a cost of £100,000 with a term of 60 months, monthly payments of £2,200 plus VAT, at a rate of 6.4% flat.
Over the term, you’d pay £132,000 in total.
With a 25% corporation tax rate, you can claim £33,000 in tax relief, effectively reducing your IT upgrade cost to just £99,000, nearly erasing the interest through tax benefits alone.
Full Expensing and Its Capital Expenditure (CapEx) Tax Relief
Introduced in the 2023 Autumn Budget, Full Expensing allows businesses to deduct the full cost of qualifying IT assets in the year of purchase, further enhancing the tax efficiency of IT investments.
For example, investing £200,000 could lead to a £53,000 tax saving by reducing your taxable income significantly in the year of purchase.
Finally, The Benefits of Price Locking…
When reviewing IT investments, it’s also important to consider the likelihood of price rises around licence and support subscriptions. Typically, these will increase each year if you only contract on an annual basis. Inflation has been running at over 5% in recent years and in some areas of technology has hit 10 – 15%. Incorporating multiple years of subscription into a lease can often allow you to unlock multi-year discounts or price fixes.
For example, an annual support contract relating to your new system investment of £25,000 may rise by 5% each year. Therefore, over three years you will pay £25,000, £26,250 and £27,563, representing £3,813 in inflationary increases on the original contract. If you are able to lock in at £25,000 for the three years using a lease that £3,813 is saved and you have the peace of mind that costs will be fixed and known for the whole period.
How We Can Help You Unlock All of These Benefits with IT Financing
- Identify qualifying IT assets: Not all purchases qualify. We’ll help you determine which ones do.
- Choose the right financing option: Full Expensing works with specific financing methods. But we’ll always guide you through the best choices.
- Maximise your tax savings: We’ll ensure you claim the full deduction you’re entitled to.
Ready to invest in your IT? Get in touch today and we’ll support you with market-leading technology, industry-leading support and finance options that will support your business financially long into the future.