Hire Purchase:
  • Enables you to purchase your equipment or vehicle outright. You pay a deposit, generally based on a percentage of the purchase price, with the balance spread over a specified term with specified monthly payments.
  • You will have to pay all the VAT on the purchase price but is generally recoverable, providing you are VAT registered.
Benefits:
  • Known payment and commitment terms.
  • No extra costs if interest rates increase.
  • Interest deductible against profit.
  • You claim the Capital Allowances.
  • You show the asset on your balance sheet.
  • And after the final "option to purchase" payment it's yours.
Finance Lease:
  • Here you get full use of the equipment but legal ownership is retained by the finance company for the duration of the lease. In effect the finance company purchases the equipment or vehicle and then leases it to you for a fixed monthly payment over a fixed period.
  • Like rental costs you will have to pay VAT on these payments but unlike renting you do have an equity interest in the asset.
Benefits:
  • Improved cashflow because you do not have to pay the VAT on the purchase.
  • Known payment and commitment terms.
  • Option of extending the agreement into a secondary period.
  • Payments generally fully chargeable against profits.
  • You can if you wish still show the asset on your balance sheet.
PLEASE NOTE: THIS INFORMATION IS PROVIDED AS A GENERAL GUIDE ONLY. WE WOULD ALWAYS RECOMMEND THAT YOU SEEK INDEPENDENT TAXATION ADVICE IN ALL CASES.
 
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