Small and medium enterprises (SMEs) can take advantage of a variety of tax breaks. One of these is to rent their IT items, rather than purchasing them outright.
This is a prime method of how to save money on taxes for a small business. But it’s not just about taxes – a good rental model comes with a whole range of other benefits as well.
The Importance of Utilising Tax Breaks
UK SMEs are being increasingly squeezed financially – partly by the low rates of Capital and Investment Allowances, but also through inflation that’s effectively reducing these limits.
This makes it crucial for businesses to take advantage of every method possible to save money.
Leasing or renting, rather than buying, IT is one of the most significant ways of doing this. The costs are wholly allowed to be counted against pre-tax profits, unlike purchasing, which only allows a percentage of the whole amount.
Whether a business is a sole trader or employs a team of staff, this can bring significant savings.
Rental costs drive down the amount of tax you pay on business profits. For those that are VAT registered, this portion of the rental payment can also be reclaimed. At the current rate of 20%, this represents a considerable further reduction in procurement costs.
Renting tech also allows SMEs to better manage their cash flow – something that can be particularly challenging through the first years of trading.
Benefits include:
- Rental costs are paid monthly or quarterly: The cost of tech can run into tens or even hundreds of thousands of pounds. Outright purchases of items, such as computers, laptops, mobile phones, printers and other office necessities can be out of reach for many smaller ventures. Renting instead of buying is usually a far more affordable option – plus it allows the costs to be spread over each tax year and factored into monthly outgoings.
- Flexible rental agreements allow for changing needs: A good rental contract will be tailored to the needs of the business. For instance, companies might have short-term tech needs, such as training courses, exhibitions or conferences. Perhaps extra laptops or mobile phones are required for temporary staff during busier periods, or maybe more advanced technology is required for a particular presentation or short-term project. Whatever the reason, the flexibility of renting is the most cost-effective way of procuring equipment.
- Renting allows companies to take advantage of higher-spec products: High-end technology can bring multiple logistical and practical advantages. But it costs. Breaking this down into more achievable monthly payments will mean you don’t have to sacrifice quality. For example, kitting a team with a suite of Apple products would cost an eye-wateringly large sum if purchased. Renting them, however, brings such an option into the realms of reality. Plus, the already mentioned 20% VAT claims and offsetting the whole rental cost against pre-tax profits is a crucial way for a small business to save money on taxes.
Other Advantages of Renting Tech
In addition to the primary tax savings, renting technological hardware and software brings multiple indirect benefits.
- Capital is not tied up: Tying up large sums of cash in equipment prevents it from being used more effectively. The pay-as-you-go rental model means this money can be directed into more profitable methods of growing the business.
- Removes the risk of equipment becoming obsolete: Technology advances at a terrific rate. Renting allows you to keep up to date with the latest offerings. This is especially important in certain fields, such as graphic design, software development and cutting-edge engineering, like VR and AI. Being stuck with old tech is one of the greatest downsides of purchasing equipment outright.
- The rental company takes care of repairs and maintenance: One of the largest expenses linked to owning business IT is maintenance and repair. According to Checkatrade, the average hourly cost of repairing a printer is £42 (plus parts). Simple computer and laptop repairs, such as broken screens and keyboards, come in at £60 – £80 per hour plus parts and data recovery can end up costing hundreds of pounds or more. While these costs might not seem that high in isolation, for a small business that might have limited cash flow, these outgoings can be a major headache. When you rent, however, maintenance and repairs will be taken care of under your rental agreement.
Renting Tech isn’t Just About How to Save Money on Taxes for Small Businesses…
…It’s also about the most intelligent use of available funds, ensuring the business has the most up-to-date technology and creating a viable financial model that can be easily budgeted over the long term.
Hire Intelligence has a huge range of IT solutions to rent and serves the whole of the UK. We offer tailored solutions for both short and long-term rental needs, with competitive rates to suit all budgets.
Get a quote today or call our team for more information.
