How does corporation tax relief work?

As highlighted in our downloadable ‘Guide to Equipment Leasing‘, leasing isn’t just a smarter way to acquire the latest equipment and technologies from a cash-flow perspective , it also qualifies as an operating expense to your business and so is 100% tax deductible.

This means, at the end of each financial year you can deduct Leased expenditure from your tax bill, giving you greater profits.

We often get asked how this works and how tax relief gets accounted for. Lucky for you, we’ve illustrated this below using two working examples.

Below you’ll note that for an equipment sale of circa. £7,000, by leasing the equipment your company will stand to save over £1,400 versus buying the equipment outright. Of course, we’ve made some taxing assumptions, but the principle is the same and the calculations scale up with your profit margins accordingly.

Here’s the working example with all assumptions highlighted:


Company A is looking to purchase new telecoms equipment for its Sales force. The supplier has offered them two options, either to buy the equipment outright or to utilise a lease option.


• Equipment Price: £7,374

• Lease Period: 3 Years

• Frequency: Monthly

• Company’s Tax Rate: 30%

Cash Purchase

Tax relief is only available on the capital allowances on the equipment.

Year 1 – 25% of £7,374 = £1,843 – Less 30% = £553.00

Year 2 – 25% of £5,531 = £1,383 – Less 30% = £415.00

Year 3 – 25% of £4,148 = £1,037 – Less 30% = £311.00

Total tax relief: £1,279.00

Lease Rental

Tax relief is available on all rentals, in this case at a rate of 30%.

Year 1 – 12 rentals of £252.00 – Less 30% = £908.00

Year 2 – 12 rentals of £252.00 – Less 30% = £908.00

Year 3 – 12 rentals of £252.00 – Less 30% = £908.00

Total tax relief: £2,724.00

By choosing to Lease, Company A would gain over £1,400 more in tax relief when compared with a cash purchase.


When a business leases their equipment they are able to gain relief on 100% of the lease rentals against its corporation tax.

This means, for each and every lease payment made the business can claim 20%+ in tax relief against its corporation tax, keeping the cash in the company.

Company A

Profit: £100,000

Corporation Tax to be paid: 21%

Profit after tax: £100,000 – 21% = £79,000

Total Tax paid: £21,000

Company B

Profit: £100,000

Corporation Tax to be paid: 21%

Lease Rentals to be paid: £10,000

Profit after Lease Rentals: £90,000

Total Tax paid: £18,900

Company A pays £21,000 while Company B pays £18,900 in corporation tax.