Equipment Financing Calculator: Lease vs Buy
Work out whether it's cheaper to buy equipment outright, finance it with a loan, or lease it — once corporation tax relief, maintenance and resale value are all factored in. Built by Rule29, business accountants and advisers to SMEs across Hull and East Yorkshire.
About the equipment
The purchase price, or the cash value the leasing company is financing.
We compare buying and leasing over the same period, so this is also used as the loan term and the lease length.
19% small profits rate applies up to £50,000 profit, 25% main rate above £250,000, with marginal relief (effective 26.5%) tapering in between — most established SMEs sit in this middle band.
If you buy it
Estimated at 10% of the equipment cost — enter your own figure to override.
The lender's APR or equivalent rate on the amount financed.
Estimated at 3% of the equipment cost a year — enter your own figure to override.
As a % of the original cost. Vehicles and machinery often hold 15–30%; IT and fit-out equipment often much less.
If you lease it instead
Estimated from the equipment cost — often quoted as "X + term", e.g. 1, 3 or 6 months upfront. Replace with an actual quote if you have one.
Estimated from the equipment cost — use the figure from an actual quote if you have one, as this varies a lot by lender and equipment type.
Contract hire often bundles this in; a straight finance lease usually doesn't.
The nominal fee some leases charge to transfer ownership at the end.
Cumulative net cost over time
How this calculator works
Buying and leasing look very different on a quote, so this calculator puts them on the same footing: the total cash you'll pay under each option, minus the corporation tax relief each option earns you, minus (for buying) whatever the equipment is worth when you sell it at the end.
Buying — whether from cash or a loan — usually qualifies for the Annual Investment Allowance, which gives you a 100% tax deduction against the full cost in the year you buy, on top of relief on any loan interest and maintenance. If you later sell the asset, a "balancing charge" claws back tax on the sale proceeds, which is why the resale value in the results is shown after tax.
Leasing doesn't get capital allowances, because you don't own the asset — but every lease payment is a straightforward deductible expense, giving you relief spread across the term instead of upfront.
The chart shows both options' cumulative net cost year by year, so you can see not just which is cheaper by the end, but when — buying often costs more upfront but pulls ahead over time once that first-year tax relief and eventual resale value are counted.
Cheapest isn't always the right call
A lower net cost over the term is only part of the decision. A few things worth weighing alongside the numbers above:
- Cash flow. Leasing usually asks for far less cash on day one, which matters if that cash is better used elsewhere in the business — stock, hiring, marketing — even if buying works out cheaper overall.
- Existing borrowing headroom. A loan or HP agreement sits on your balance sheet and can affect how lenders view your business the next time you want to borrow.
- How long you'll actually use it. If the equipment is likely to need replacing or upgrading before the term is up, leasing's flexibility can be worth more than the raw cost comparison suggests.
- Maintenance risk. Contract hire that bundles in servicing and breakdown cover trades a bit of extra cost for a lot less uncertainty.
- What it does to your accounts. Owned assets and loans appear on your balance sheet; many operating leases don't (unless you report under full IFRS), which can matter for lending covenants or how the business looks to a buyer.
Types of equipment finance in the UK
"Buy or lease" actually covers several distinct products:
- Cash purchase — pay outright, no interest, full ownership from day one.
- Hire purchase (HP) — pay a deposit then fixed instalments; you own the asset at the end (sometimes after a small option fee), and you can usually claim capital allowances from day one even though you're still paying it off.
- Finance lease — the leasing company owns the asset but you take on most of the risks and rewards of ownership; payments are a deductible expense and you may share in the resale value at the end.
- Operating lease / contract hire — you rent the asset for a period well short of its useful life, often with maintenance included, and hand it back at the end. Common for vehicles and equipment that dates quickly.
- Government incentives — the Annual Investment Allowance (up to £1m/year) and, for larger new plant and machinery purchases, full expensing, both aimed at encouraging businesses to invest by giving tax relief upfront rather than spread over years.
Supporting businesses across Hull and East Yorkshire
Rule29 works with SMEs and entrepreneurs across Hull and East Yorkshire on the numbers behind growth — including the capital investment decisions that shape cash flow and the balance sheet for years afterwards. This calculator is a starting point; for a comparison built around your actual accounts, tax position and the specific asset you're financing, we're happy to talk it through.
Financing your next piece of equipment?
Get in touch with Rule29 for advice tailored to your business — visit rule29.co.uk or speak to your usual Rule29 contact.
Equipment financing calculator FAQs
Is it cheaper to lease or buy equipment?
It depends on the interest rate, resale value, your tax rate and how the lease is priced — there's no rule that always favours one over the other. This calculator works the comparison through for your own figures, but as a rule of thumb, buying tends to win when resale value is decent and you can access reasonable borrowing rates; leasing tends to win when the equipment depreciates fast or maintenance-inclusive leasing removes a real cost you'd otherwise carry.
What is the Annual Investment Allowance and how does it affect this decision?
The Annual Investment Allowance (AIA) lets most businesses deduct the full cost of qualifying plant and machinery from their taxable profits in the year they buy it, up to £1m a year. It's a major reason buying can be more tax-efficient than it first looks — but it only applies if you own the asset, so it doesn't apply to operating leases.
Do I get tax relief on lease payments?
Yes. Lease and contract hire payments are generally treated as a normal deductible business expense, spread across the period you're paying them — you don't need to own the asset to get relief, you just don't get the upfront AIA deduction that ownership brings.
What happens to my tax relief if I sell equipment I've claimed allowances on?
If you claimed 100% relief through the AIA and later sell the asset, the sale proceeds are generally added back to your taxable profits — a "balancing charge" — effectively taxing what you get for it. It doesn't wipe out the benefit of buying, but it does mean the resale value isn't tax-free, which is why this calculator nets tax off the resale figure.
Should I lease or buy a company vehicle?
Cars follow different, generally less generous capital allowance rules than other plant and machinery — most don't qualify for the Annual Investment Allowance at all, and relief depends on the car's CO2 emissions. This calculator is built for general equipment and machinery; if you're comparing vehicle finance specifically, talk to Rule29 first, as the tax treatment can change the answer.
Does leasing keep the asset off my balance sheet?
Often, yes, if you report under UK GAAP (FRS 102) — most operating leases stay off the balance sheet as a simple expense. If your business reports under full IFRS, IFRS 16 generally requires most leases to be capitalised on the balance sheet regardless. Worth checking which accounting framework applies to you.
What's the real difference between a finance lease, an operating lease and hire purchase?
Broadly: hire purchase ends in you owning the asset outright; a finance lease transfers most of the risks and rewards of ownership to you without a guaranteed transfer of title; an operating lease is closer to a straightforward rental, usually for less than the asset's useful life, often with maintenance bundled in. The tax and accounting treatment differs across all three, so the labels matter.
Which is better for cash flow — leasing or buying?
Leasing almost always asks for less cash upfront, since you're not funding the full purchase price or a large deposit on day one. That can matter more than the total cost over the term if cash tied up elsewhere in the business earns a better return, or if preserving working capital is the priority right now.
Is this equipment financing calculator accurate?
It's built to reflect how UK capital allowances, lease relief and balancing charges actually work, based on figures you enter — but it can't account for every quirk of your specific accounts, existing capital allowance pools, or a particular lender's terms. Treat it as a strong planning tool, and talk to Rule29 for a comparison built around your actual numbers.