Lease vs Buy: Equipment Finance

The Question Behind the Choice

Leasing and buying both put the same kit in your hands. The difference is what you are paying for. Buy outright or through hire purchase, and you are paying to own. Lease, and you are paying for the right to use. Ownership only passes under hire purchase.

The right answer turns on three things: how long you plan to use the asset, what it will be worth when you are done with it, and whether the capital tied up in ownership earns more elsewhere in the business.

The Case for Leasing

Leasing protects working capital. Rather than handing over a lump sum (or taking a term loan that must be repaid whatever the trading year looks like), you make predictable monthly payments sized against use, not full cost.

For kit that depreciates fast or dates quickly (vehicles, IT, printing and comms) leasing pushes the residual value risk onto the finance provider. At term end you hand back an ageing asset and refresh with current technology, instead of owning something worth a fraction of what you paid.

Leasing no longer keeps the commitment off your balance sheet. For accounting periods beginning on or after 1 January 2026, FRS 102 follows IFRS 16 and puts most leases on the balance sheet as a right-of-use asset and a lease liability. Only short-term leases of under 12 months and leases of low-value assets can stay off it. What leasing still changes is the cash: a large capital decision becomes a run of monthly payments, which leaves more cash free for other needs.

The Case for Buying

Ownership builds equity. An asset bought outright or through hire purchase sits on the balance sheet and holds value you can later release through asset refinance if liquidity tightens. A leased asset generates no such equity. When payments stop, you have nothing to show for them.

For assets that hold value well (specialist plant, agricultural machinery, some commercial vehicles), the total cost of ownership over ten years can come in below the cumulative lease payments for equivalent use over the same period.

Ownership also removes the end-of-term sting that comes with leasing: wear-and-tear charges, return condition disputes, and the cost and disruption of sourcing replacement equipment at the end of every cycle.

Total Cost Comparison

The comparison that matters is total cost of ownership versus total cost of leasing across the period you actually plan to use the asset. Monthly lease payments are not a like-for-like with the purchase price.

You need to factor in the full lease term, any residual value if buying, and the opportunity cost of the capital deployed.

Take a £50,000 machine. Buy it outright and you hold an asset that might be worth £20,000 in five years. Lease the same kit over 60 months and you own nothing at the end.

Which works out cheaper depends entirely on residual value assumptions, the lease rate, and what that £50,000 could have earned working elsewhere in the business.

Cash and Capital Position

For businesses with strong cash positions and few competing uses for capital, buying usually wins. The cash sits in an asset rather than a current account, but the total cost is lower and ownership is established.

For businesses running close to their working capital limits, or with growth plans that need capital deployed into the business rather than parked in equipment, leasing is the rational choice even if the headline cost is higher. Cash put to work in stock, people, or new contracts often returns more than the interest saved by buying.

Tax Considerations

Hire purchase lets the business claim capital allowances on the full asset value (potentially including the annual investment allowance) from when the asset comes into use, though not on the interest. That can produce a sizeable upfront deduction.

Finance lease payments are not simply deductible as operating costs. Capital allowances go to the lessee only under hire purchase or a long funding lease. Under other leases the lessor, as owner, claims them, and the lessee deducts its rentals as they pass through the accounts. For an operating lease, HMRC says the timing of the rental deduction follows how the lease is accounted for (Business Leasing Manual, BLM00510).

Tax treatment varies by business size, accounting standard, and how the asset is classified. Take advice before assuming the tax position favours one structure over the other.

Which Businesses Should Lease and Which Should Buy

Leasing tends to suit businesses in rapid growth where capital needs to stay mobile; operators running short-life or high-obsolescence assets; businesses whose existing debt facilities would be stretched by a major purchase; and teams that find a monthly payment easier to plan around than a capital commitment.

Buying tends to suit businesses with strong balance sheets and capital to spare; operators using long-lived, stable assets where ownership builds genuine equity; situations where residual value is high and reliable; and businesses that want to sidestep the ongoing contractual obligations and return conditions that leasing brings.