Lease or buy? What actually happens to your money when you replace your team's phones

Buying outright: the numbers

List price (ex VAT): £6,000. VAT at 20%: £1,200. Total invoice: £7,200.

If the phones are used wholly for business, you reclaim the full £1,200 VAT on your next return, bringing the net cost to £6,000. If any of the handsets have material personal use, HMRC only allows the business-use portion of the VAT back - in practice, most accountants treat a company-owned, company-controlled phone as 100% business use, but it is worth confirming with yours.

Mobile phones qualify as plant and machinery for capital allowances, so the spend sits inside the Annual Investment Allowance (AIA), which gives 100% relief on qualifying spend up to £1 million a year. Assuming you have not used up your AIA elsewhere, the full £6,000 comes off your taxable profit in the year of purchase.

What that relief is actually worth depends on your corporation tax rate:

- Small profits rate (profits up to £50,000): 19% - £1,140 relief

- Marginal relief band (£50,000 to £250,000): effective rate up to 26.5% - up to £1,590 relief

- Main rate (profits over £250,000): 25% - £1,500 relief

So the true net cost, once the tax relief has worked through, lands somewhere between £4,410 and £4,860. The catch is timing: you will not feel that relief until your corporation tax bill falls due, up to nine months after your year end. The full £7,200 leaves the business today, and it does not come back for a while.

Leasing: the numbers

This is where it matters to be specific about the type of agreement, because leasing covers more than one structure and HMRC treats them differently. A genuine operating lease - the type most business mobile leasing actually is - means the finance company keeps ownership throughout. You are renting the use of the handset, not buying it in instalments. At the end of the term, typically around 24 months, the devices go back. There is usually an option to buy at fair market value, but by then you are already a generation or two behind on the hardware, so most businesses simply lease the next set instead. Figures below are illustrative rather than a quote - get an exact one from us for your fleet.

Notice the total, at £6,600 ex VAT, is higher than the £6,000 cash price. Leasing companies build in a margin for the finance, the support, and the risk they are carrying on the handset's condition at handover. You are not getting the phones cheaper - you are getting them without tying up £7,200 today, and with someone else carrying the refresh and residual value risk.

Because this is a true operating lease, capital allowances do not come into it at all. Every payment is a straightforward revenue expense, deducted from profit as it is incurred. VAT is reclaimed month by month, on each invoice, rather than in one go. Tax relief on the full £6,600 works out at roughly £1,254 (19%) to £1,749 (26.5% marginal), spread across the two-year term rather than landing in one go. Net cost once that relief has worked through: somewhere between £4,851 and £5,346 - a little more than buying outright, once AIA is factored in.

What the tax comparison actually tells you

Here is the honest version, without the sales pitch: if your business has AIA headroom and can absorb £7,200 leaving the account in one go, buying outright is usually the cheaper route on a pure pounds-and-pence basis. The 100% first-year write-off under AIA already gives you most of the tax efficiency that leasing is sometimes sold on - there is no hidden VAT trick that only leasing unlocks. Where leasing earns its place is everywhere else: cash flow, AIA protection for bigger purchases, a forced refresh cycle, no disposal admin, fleet flexibility, and, the strongest argument of the lot, what else that £7,200 could be doing for you. Each of those is worth taking in turn.

CapEx or OpEx - why the label matters

Buying outright and running a hardware fund are both, at heart, capital expenditure: money spent to acquire an asset the business then owns and carries on its books. Leasing is operating expenditure: a service you pay for as you use it, like your photocopier contract, your software subscriptions, or your office rent. That distinction sounds like accounting semantics, but it changes how the spend behaves.

CapEx is lumpy. It shows up as a large one-off outflow, it competes with your Annual Investment Allowance capacity against everything else you buy that year, and it sits on the balance sheet depreciating. OpEx is smooth. It is a predictable monthly line that scales cleanly with headcount, does not touch your AIA cap, and never needs a capital budget approval round. For a finance team trying to forecast the next twelve months, that predictability is worth more than most people give it credit for.

The downsides of buying outright

- Cash out on day one. £7,200 leaves the business in a single hit, whatever else that quarter had planned for it.

- It eats your AIA headroom. The £1 million allowance is shared across everything you buy that year - vans, machinery, IT infrastructure. Spending it on phones is fine until you need it for something bigger.

- You end up sweating the asset. Because you have already paid for it, there is a natural pull to keep it running past its useful life to get your money's worth, which means staff on older handsets, slower performance, and devices that stop receiving security updates before they are replaced.

- Disposal is your problem. Fixed asset register entries, compliant data wiping, and a decision on trade-in, write-off or the drawer - admin nobody budgets time for.

- Residual value risk sits with you. What a two-year-old handset is worth against whatever Apple or Samsung has just launched is unpredictable, and it is your risk to carry, not a finance company's.

The downsides of a hardware fund

A hardware fund - setting cash aside each month so you can self-finance the next refresh in cash - sounds like it should solve the cash flow problem without paying a leasing company's margin. In practice it has its own weaknesses.

- It depends on discipline. Sinking funds have a habit of getting quietly borrowed against when something more urgent comes up, with a mental note to top it back up next quarter, and that quarter is often exactly when the phones are due.

- There is no forcing mechanism. A lease has a hard end date that makes someone have the refresh conversation. A fund just sits there, and it is very easy to keep pushing the replacement date back once the risk is invisible day to day.

- It still carries every downside of buying outright. The fund only changes how you paid for the handsets, not the ownership model - you still get the disposal admin, the residual value risk, and no bundled support.

- The capital is doing almost nothing while it waits. Cash reserved in a current or savings account earns next to no return, so a hardware fund is arguably the worst of both worlds: capital not deployed into the business, and none of a lease's bundled service or guaranteed refresh to show for it.

Fleet flexibility: rotating stock to match the business

Worth being precise about what this does and does not mean. A lease is a commitment: once it is signed, you see the term through. There is no picking individual lines up and dropping them as headcount moves week to week, and early termination is not a free option. Where it pays off is at the point of renewal.

Owned phones bought for a team of twenty do not shrink when headcount drops to fifteen - you are left holding kit that is worth very little secondhand and doing nothing for anyone, indefinitely, because you already own it outright. A lease forces a decision every couple of years instead: when the term ends, you renew for the headcount you actually have then, not the headcount you had when you signed. For any business with hiring churn, seasonal staff, or a growth phase, that periodic reset is worth real money that never shows up in a straight tax comparison - it just is not an instant, mid-term lever.

The real argument: opportunity cost of capital

This is the strongest case for leasing, and it has nothing to do with tax. Buying outright means £7,200 leaves your account this month. Leasing means £330 leaves your account this month, and roughly £6,870 stays available - for stock, for a new hire, for a marketing push to bring in new business.

What does that flexibility cost you? Comparing the two routes net of VAT (both reclaim it, just on different timescales), leasing runs about £600 more than buying over the two-year term - call it £300 a year, or roughly 5% of the £6,000 handset value annually. That is the hurdle rate. Any use of that freed-up £6,870 that returns more than about 5% a year - a marketing campaign that brings in new clients, stock that turns over at a profit, simply not drawing down an overdraft facility - clears it comfortably. Most businesses would take that trade every time if they framed it this way rather than as a straight cost comparison.

Put plainly: spending £6,000 now buys you five phones. Spending £330 this month and putting the other £6,870 to work in the business is very likely to buy you more than five phones' worth of value, over the same two years.

The bottom line

Do not lease because you think it is a tax loophole - it is not. Lease because it turns a lumpy capital outflow into a predictable monthly cost, protects your AIA headroom for bigger purchases, keeps your fleet sized to your actual headcount, removes the disposal admin, and, most importantly, leaves the rest of that £7,200 free to do something more useful for the business this month. If none of that matters to you and you have got the AIA headroom to spare, buying outright is usually the cheaper option in pure pounds and pence. Most growing businesses find the other factors outweigh that small difference.

One more thing worth knowing: from April 2026, spend that exceeds your AIA in a given year only gets Writing Down Allowances at 14% a year in the main pool (down from 18%), with a 40% First Year Allowance available on some new plant and machinery above the AIA cap. For most businesses buying a handful of handsets this will not come into play - but it matters if phones are part of a bigger capital spend in the same year.

This article does not constitute financial advice - figures above are illustrative, and allowances and rates change - always check the exact numbers with your accountant before making the call. If you would like a real leasing quote for your fleet, or want the buy-vs-lease sums run against your actual figures, drop us a message at [email protected].