There’s lots of talk about the benefits of leasing dental equipment and dental chairs.  But most comment fails to address the central issue – why should dentists lease dental equipment rather than use some form of purchase plan, for example a hire purchase agreement?  Is it simply cheaper to lease?  Is it a question of tax savings?  Or is there something else that drives the decision?

Purely from a cost perspective, there is little difference between a hire purchase and a lease agreement. Both are available at similar rates and across the transaction the costs are much the same.

How about from an income tax/corporation tax point of view?  Well, in both cases the expenditure on dental equipment can be offset against income so will reduce your tax bill.  It is true to say that the current Annual Investment Allowance enables businesses to accelerate their allowances and bring tax savings forward, a scheme that can only be used if you buy the goods, perhaps using a hire purchase agreement.  However, across the period of a lease the tax savings are the same regardless of whether you lease or buy.

What about VAT recovery?  Again, the situation is very similar.  Dentists of course are exempt from VAT on the bulk of their business so any VAT recovery is only possible to the extent of their agreement with HMRC which applies equally to goods purchased or leased.

So if it’s not a question of cost or tax savings, what is it all about?  It is of course for the very same reason that so many businesses fail.  It’s a question of cash-flow.  When dental equipment or IT equipment or any other capital goods are purchased by a dental practice, VAT is payable on the supply price, only a small proportion of which can be recovered.  When however the goods are bought by a leasing company they are able to recover all of the VAT and base the lease rental on the VAT exclusive cost.

In just about all cases the minimum cash outlay required to purchase a dental chair via a hire purchase agreement is the cost of the VAT, say 20%, plus any deposit required by the lender.  With a lease on the other hand, the cash outlay could be as low as one month’s rental plus the VAT on that rental.  Generally speaking, this gives leasing a significant cash-flow advantage which is so important when running a successful dental practice.

For further information please contact Mike Shaw of TeleLease on 0121 647 7600 or 01908 516300.