Hire Purchase / Lease Purchase
Hire purchase enables you to spread the cost of the asset, giving you eventual ownership at the end of the repayment term.
Hire purchase finance is designed to ensure a steady cash flow, rather than making one large capital outlay.
With Hire Purchase, after all the payments have been made including the option to purchase fee, the client becomes the owner of the equipment. For tax purposes, from the beginning of the agreement the client is treated as the owner of the equipment and is therefore able to claim capital allowances. The client will be responsible for maintenance and insurance of the equipment.
Lease purchase is identical to hirepPurchase in many ways. At the end of the agreement, the customer has an option to buy the asset without a return option.
Advantages of Hire Purchase / Lease Purchase Include:
Improving Company Balance Sheet: Company assets - lease/hire purchase is ideal for companies that want to retain the asset/vehicle as an asset at the end of the agreement. Assets financed in this way can appear as a balance sheet item, which therefore enables you to write down the value against taxable profits.
Cash Flow: Purchasing assets outright can put a strain on cash flow but with lease purchase you can spread the cost of the asset over a set term based on the life of the asset.
Ownership of the asset: Once any option to purchase fee and/or balloon payment is made, the asset/vehicle becomes your property.
Certainty: With fixed interest rates and monthly payments, hire/lease purchase agreements help businesses when forecasting cash flow. The business is able to compare the payments with the expected revenue and profits generated by the use of the asset.
Reclaimable VAT: For assets used for business purposes the total VAT can be reclaimed if the client is a VAT registered business.
Optional Balloon payments: At the end of this agreement a ‘balloon’ rental can be arranged, which can facilitate lower monthly repayments.