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Leasing info

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  • 30-05-2008 10:37am
    #1
    spectre
    Registered Users Posts: 729 ✭✭✭


    I'm thinking about starting a small business as a side income. I have a plan that requires me to buy a machine costing approx 5k incl VAT. I should make 10k pre-tax profits in year one.

    Initially I was of the opinion that I could write the machine off as a business expense. Apparently not though as it's considered an asset. I can however, claim 12.5% on the depreciating value of it.

    I'm now thinking that leasing may be the best option. I believe I can write off the lease payments as a business expense. Is this correct?

    The banks don't seem to have much info on this type of finance on their website. What kind of interest am I likely to be paying?

    Can I get a leasing contract over a short term like 12 months?

    At the end of the leasing agreement, typically, how much of the machine value will I have paid through leasing?

    Thanks


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    #2
    thecola
    Closed Accounts Posts: 33 ✭thecola


    Just briefly - not knowing the specifics of your deal and equipment -

    I doubt if bank would give you leasing on a particular machine, more likelly you will get a loan for buying whatever. This most probably, as you are making new venture, will have to be backed up with your current income (salary?). Can you afford 5k loan for 12month? Interest, I'd say, would vary from 6 to 12%, depending on various factors. So monthly payment would be around 450€.

    If there is a case that you get leasing, then spending on it is considered as an expense, and in the end you should have a balance of some 30-0% of the net value again depending on how you organize it.

    Why you wouldnt want to take it as an asset? You would have asset worth 5k and liabilities worth 5k. You taxable income would be deducted by depreciation and loan repayment expense.


    (i'm not an accountant or tax consultant particulary, but I work related to that, therefore in case i made some assumption wrong, I wont mind being corrected, also i would suggest you to get to know Irish GAAP, regarding finance lease and operating lease, which will determine how this thing is treated on your P&L and BS).

    Respect.


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    #3
    spectre
    Registered Users Posts: 729 ✭✭✭spectre


    thecola wrote: »

    Why you wouldnt want to take it as an asset? You would have asset worth 5k and liabilities worth 5k. You taxable income would be deducted by depreciation and loan repayment expense.

    Well, the whole point of going down the leasing route as opposed to normal lending finance is to reduce my tax bill.

    I'm not sure but I think if I bought it outright, I could claim approx €250 for cost of lending and €625 for depreciation. €875 total

    Whereas by leasing, I could reduce tax bill by 12*€450

    Unless I'm missing something :o (I probably am...)


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