Equipment Leasing vs Purchase UK 2025: Which Saves Money?
Complete cost and tax analysis. Capital allowances vs 100% deductible lease payments. When each option saves money for UK businesses.
Three Ways to Acquire Equipment
1. Cash Purchase (Outright Ownership)
- Pay full cost upfront
- Own equipment immediately
- Claim capital allowances (tax deduction)
- No ongoing payments
2. Hire Purchase (Buy Over Time)
- Pay 10-30% deposit
- Fixed monthly payments (12-60 months)
- Own at end (small option fee £50-£100)
- Claim capital allowances
- Interest: 5-9% APR typically
3. Finance Lease (Never Own)
- Pay 0-20% deposit
- Fixed monthly payments (2-7 years)
- Never own - return or continue leasing at end
- 100% of payments tax-deductible
- Interest: 4-8% APR (lower because no ownership)
Tax Benefits Comparison
£50,000 Equipment - Tax Impact
Cash Purchase / Hire Purchase
- • Claim via AIA (Annual Investment Allowance)
- • Deduct 100% in year 1 (up to £1m allowance)
- • Corporation tax saving: £50,000 × 19-25% = £9,500-£12,500
- • One-time benefit in year 1
Finance Lease
- • Lease payments 100% tax-deductible as operating expense
- • £50,000 spread over 4 years = £12,500/year deduction
- • Tax saving: £12,500 × 19-25% = £2,375-£3,125 per year × 4 years
- • Total saving: £9,500-£12,500 (same total, spread over time)
- • Better cash flow (tax relief each year)
Total Cost Comparison: £30,000 Equipment Over 4 Years
| Method | Total Cost | After Tax (20%) |
|---|---|---|
| Cash Purchase | £30,000 | £24,000 |
| Hire Purchase (7% APR) | £33,480 | £26,784 |
| Finance Lease (5% APR) | £31,920 | £25,536 |
Winner after tax: Cash purchase (if you have cash available)
Winner for cash flow: Finance lease (preserve working capital)
When to Lease
Leasing makes sense for:
- Technology equipment: IT, computers (obsolete in 3-5 years)
- Vehicles: Commercial vans/cars (upgrade every 3-4 years)
- Cash flow priority: Preserve capital for operations
- Balance sheet optimization: Keep assets off balance sheet
- Regular upgrades needed: Latest technology important
When to Purchase
Purchasing makes sense for:
- Long-life equipment: Machinery lasting 10+ years
- You have cash available: Avoid interest costs
- Equipment holds value: Construction equipment, specialist machinery
- Full control wanted: Modify, sell, or keep indefinitely
Decision Framework
Quick Decision Guide
- IT equipment: Lease (obsolescence risk)
- Vehicles: Lease if upgrading every 3-4 years, buy if keeping 7+ years
- Kitchen equipment: Purchase via HP (keep 10+ years typically)
- Machinery: Purchase if specialized, lease if standard
- Office furniture: Purchase (long life, low value)
Conclusion
Leasing wins for: Technology, vehicles you'll upgrade, cash flow preservation
Purchase wins for: Long-life equipment, if you have cash, assets that hold value
The tax benefits are similar (both save 19-25%), so decision comes down to cash flow, asset life expectancy, and upgrade frequency.
Compare Leasing vs Purchase Costs
We'll calculate total cost including tax benefits for your specific equipment. Compare hire purchase, finance lease, and cash purchase options.
Compare Equipment Finance