Equipment Lease vs Buy Calculator
Compare UK asset finance lease vs purchase.
What this calculator does
This calculator compares the total after-tax cost of leasing equipment against financing its purchase. Enter the asset cost, deposit, finance rate and term on the buy side, the monthly rental and term on the lease side, and your tax rate, and it returns a total cost for each route together with a recommendation.
The comparison is worth doing because the two options arrive in incompatible units. A lease is a monthly rental, a purchase is capital expenditure plus finance charges, and the tax treatment differs on each. Reducing both to a single after-tax figure is the only reliable way to see which is genuinely cheaper.
When to use it
Run it whenever a supplier offers finance alongside a cash price — standard practice for commercial vehicles, production plant, medical equipment, and catering fit-out. Suppliers lead with the monthly rental precisely because it discourages comparison against the outright purchase total.
It also earns its place when cash rather than cost is the binding constraint. Leasing sometimes loses on total cost and remains the right answer, because the deposit on a purchase would leave the business without a buffer. The calculator does not make that call, but it puts a price on the flexibility so you know what you are paying for it.
Understanding the inputs
Equipment cost should be the delivered and installed price excluding VAT, since a VAT-registered business reclaims it. Deposit is the up-front contribution on the buy route; asset finance lenders commonly look for 10 to 20 percent.
Enter the finance rate as quoted and the term in years, keeping it inside the asset's useful life. Use the lease rental and term exactly as offered. Tax rate should be your marginal effective rate — 25 percent main rate corporation tax, 19 percent for small profits, or your income tax rate if the business is unincorporated, because that determines what the relief is really worth.
How is this calculated?
Lease Total = Monthly × Term. Buy Total = (Down + Total Interest) − Tax Depreciation Benefit − Residual. Compare after-tax total cost.
A worked example
A machine costs £60,000. Buying means a £10,000 deposit and £50,000 financed at 8.5 percent over 5 years, giving repayments of roughly £1,026 a month and total outlay near £71,550. Full expensing or the AIA at a 25 percent corporation tax rate returns about £15,000, and the machine is worth around £14,000 at year five, so net cost is approximately £42,600.
Leasing at £1,150 a month for 60 months totals £69,000. Rentals are deductible, worth about £17,250 in relief, leaving a net cost near £51,750. Buying is therefore roughly £9,200 cheaper — but requires £10,000 up front and leaves you owning a five-year-old asset you then have to sell.
Limitations and assumptions
The model excludes maintenance, insurance, downtime, and disposal costs, which can be significant and often differ between the routes. A full-maintenance lease may be closer in real cost than the raw comparison implies. It also applies a simple residual assumption rather than a market valuation.
It does not discount future cash flows, so it undervalues the timing advantage of spreading rentals against paying a deposit today. Nor does it model balance sheet treatment under IFRS 16 or the effect on your borrowing capacity. Use it to frame the decision, then have your accountant confirm the capital allowances position before you commit.
Common Questions
- When does leasing beat buying?
- Leasing suits equipment that dates quickly, situations where the deposit would leave the business short of working capital, and cases where you genuinely want to hand the asset back. Buying suits long-lived assets with real residual value, which covers most plant, commercial vehicles, and fit-out expenditure.
- What is the Annual Investment Allowance?
- The AIA lets a business deduct the full cost of qualifying plant and machinery against taxable profits in the year of purchase, up to a generous annual limit that covers most small business spending. It pulls the tax relief on buying entirely forward and frequently decides this comparison by itself.
- What is full expensing and does it apply to me?
- Full expensing gives companies a 100 percent first-year deduction on qualifying new plant and machinery, with no upper limit. It applies to companies within the charge to corporation tax, not to unincorporated businesses, which rely on the AIA instead. Second-hand assets are generally excluded, so check eligibility before assuming the relief.
- Are lease payments an allowable expense?
- For an operating lease, payments are generally deductible against profits as they arise. A finance lease or hire purchase agreement is treated differently — you claim capital allowances on the asset and deduct the finance charge. Cars carry additional restrictions based on emissions, so take advice rather than assuming.
- What is the difference between hire purchase and leasing?
- Hire purchase transfers ownership at the end for a nominal option fee, and you claim capital allowances as though you had bought the asset outright. A lease is rental, with the lessor retaining ownership. Hire purchase generally costs more monthly but leaves you owning something, which changes the total-cost comparison substantially.
- How should I estimate residual value?
- Use actual trade and auction prices for the same asset at the age you intend to hold it. Plant often retains 25 to 40 percent after five years, vans vary widely by mileage and specification, and IT equipment is effectively worthless. Overstating residual is the usual way this comparison gets tilted toward purchasing.
- What is the effective interest rate on a lease?
- Leases seldom quote one, which is precisely why they appear inexpensive. Take the cash price, the payment, the term, and any residual, then solve for the implied rate. It is often several points above what asset finance from a bank would cost, and calculating it is the most valuable step in the exercise.
- How does leasing appear in my accounts?
- Under IFRS 16, most leases over twelve months sit on the balance sheet as a right-of-use asset and a lease liability. Companies applying FRS 102 still distinguish operating from finance leases, though the standard is under revision. If a lender suggested leasing protects your gearing ratios, check which framework your accounts follow.