Guide

Decide whether to lease or buy assets

Buying equipment outright

Buying equipment outright may at first seem like the best option, but it's always a good idea to think about whether this makes best use of your working capital. It may be more cost-effective to rent or lease certain items.

Advantages of buying equipment

There are several advantages of buying equipment outright. It means you:

  • fully own the asset - unless you have used it as security for a loan
  • are treated as the owner for tax purposes and can claim capital allowances
  • don't tie your business into long-term agreements which may be difficult to end
  • will pay less overall than you would through a lease or hire purchase agreement

Disadvantages of buying equipment

However, there are also several potential disadvantages of buying equipment outright:

  • you have to pay the full cost of the asset up front which can affect your cashflow
  • you may need to use an overdraft or loan to fund the purchase - overdrafts can be withdrawn at short notice and in some cases early repayment of loans can be demanded
  • small businesses might not get the same price as bigger businesses
  • if you do not have good product knowledge and experience you could make an unwise choice and you may end up buying equipment you don't need
  • you can't easily spread the cost to coincide with money coming into the business
  • you are entirely responsible for the maintenance and repair of the asset, which can be a risk if the equipment breaks down or needs replacing
  • you won't be able to take advantage of the tax benefits of deducting the cost of rental from your taxable income
  • the value of the asset may depreciate over time and be worth less than you paid for it 

Tax implications

As with leasing arrangements, there also are tax reliefs for buying assets outright. For more information, see acquire assets and borrow money tax efficiently.