Hire purchase allows you to purchase an asset by spreading the cost over a set period of time. Following an initial deposit, the balance is then paid in instalments, usually on a monthly basis. During the agreement, you are responsible for the maintenance and insurance of the asset.
At the end of the agreement, you have the option to buy the asset by making a final option to purchase fee payment to gain ownership. Balloon payments are also available.
For tax purposes, you are treated as the owner of the asset from the beginning of the agreement so you may be able to claim capital allowances.
Benefits of Hire Purchase
- Cash Flow. Purchasing an asset outright can be expensive and could impact on your cash flow. By choosing hire purchase, you can spread the cost over a longer period of time. With interest rates on your monthly payment usually fixed, you know exactly what is coming out and when, allowing you to forecast your cash flow. The business is able to compare the payments with the expected revenue and profits generated by the use of the asset.
- Improving Company Balance Sheet. For companies who wish to own the asset at the end of the agreement, hire purchase is an ideal solution. Assets financed in this way may be able to be recognised as a balance sheet item, whose value it may be possible to write off against taxable profits.
- Reclaimable VAT. If your business is VAT registered and the asset is being used for business purposes, the total VAT can be reclaimed.
- Access to High Quality Equipment. Hire purchase may give you access to a wider range of equipment too expensive to purchase outright. This solution gives you immediate access to the asset you require, without having to wait for sufficient savings or profit to come in.
For more information on hire purchase or to discuss the options available to you, contact our sales team on 02380 456565 or [email protected].