My business needing "machinery" best way to finance?

[sidekickdmr]

Hey Gang,

Im in need of a UTV for lugging logs, gas canisters, cleaning stuff etc about our woodland for the business.

If I want a new machine, the cost is about 7k + VAT.

What is the most tax efficient and low cost way to finance something like this?

We are a non VAT reg partnership if that helps

Thanks

[Eric Mc]

Have you spoken to your accountant yet?

[Sir_Dave]

sidekickdmr said:

If I want a new machine, the cost is about 7k + VAT.

What is the most tax efficient and low cost way to finance something like this?

We are a non VAT reg partnership if that helps

I'm not an accountant, the chap above is your man when it comes to that sort of thing, but naturally, the cheapest way to purchase it is with cash - no interest to worry about etc.

If you want to finance it, there are three main options really:

Finance Lease:
The supplier is paid directly by the funder, for both the asset and the VAT.
VAT is therefore payable on the rentals - instead of up front as per a Hire Purchase or Loan (maybe better for cashflow)
Funder claims the writing down allowances on the asset and you can normally offset the rentals against taxable profits.
The finance company owns the asset and rent it to you over an agreed period of time.
At the end of the agreement, there is usually a small "title" fee.

Hire Purchase:
Supplier is paid directly by the funder for the asset only, with the customer paying the VAT.
Asset goes on the balance sheet and you are able to claim Writing Down Allowances (its up to £1 million per year now), along with tax relief on the interest element of your payments.
At the end of the agreement, there is a small "option to purchase" fee.

Loan:
The money is forwarded to you, you pay the supplier for the asset & the VAT combined.
Asset goes on the balance sheet and you are able to claim Writing Down Allowances, along with tax relief on the interest element of your payments.
You own the asset from Day 1.

From the limited information available, id suggest that if you want to "put it through the business" a Hire Purchase is probably the best route forwards (often easier to obtain HP funding than loan as its asset secure), although EricMc/your accountant may have a better suggestion for you, plus further info on the VAT options. From my understanding, whilst i realise that you arent on it currently, with the flat rate scheme, an asset of this size purchased via cash/HP/Loan would be eligible for a VAT reclaim.