Borrowing Money
Most businesses will need to borrow money at some point. This may be during the start-up phase or to fund the purchase of new equipment, for example.
It is possible to cut the cost of borrowing by doing it in a way that reduces your overall tax bill. Tax relief on borrowings is not sufficiently exploited by some businesses.
Tax relief may offset the costs of some types of borrowing - though not all. Careful consideration must be given to the implications of all borrowing.
This guide illustrates some tax-efficient methods of borrowing. For example, if you intend to rent or lease assets, borrow in order to buy assets, or perhaps borrow from the directors' pension scheme.
Tax relief on renting or leasing an asset
Leasing an asset is like renting it over a period in return for fixed rental payments. Many UK businesses take advantage of leasing.
Renting or leasing assets can be tax efficient - this can reduce your overall tax bill, as the cost is deductible as a business expense. This is a factor in determining whether you should rent or lease an asset, rather than buy.
- You do not legally own the asset. It is returned at the end of the rental, hire or lease period.
- You do not bear the risk that, when you have finished with the asset, its value has decreased below the amount you paid for it.
- The asset can often be replaced by a newer one, by upgrading at little or no extra cost.
- You do not have to find a large cash deposit
