With a “lease” you:

• Pay regular rental payments to the lessor (financing company) for the use of an asset.
• The lessor retains ownership of the asset throughout the lease term.
• At the end of the lease term, you typically have the option to return the asset, renew the lease typically at lower monthly costings, or purchase the asset at its residual value or pre-agreed price.
• You may benefit from tax advantages, as lease payments are considered operating expenses.

With a “hire purchase” you:

• Add the asset to your balance sheet as a fixed asset, while the corresponding liability (the outstanding balance of the hire purchase agreement) is recorded as a liability thus allowing you to claim capital allowances and tax benefits associated with ownership of the asset.
• Pay regular installment payments to the finance company for the use of an asset.
• Ownership of the asset transfers to the hirer upon the completion of all installment payments as standard.
• You have the responsibility for maintaining and insuring the asset during the hire purchase period.

The key differences between a lease and hire purchase are:

• Ownership: In a lease, ownership remains with the lessor, whereas in hire purchase, ownership transfers to the hirer upon completion of payments.
• Payment Structure: Lease involves regular rental payments, while hire purchase consists of installment payments leading to ownership.
• Return or Purchase Option: Leases often offer flexibility to return, renew, or purchase the asset at the end, while hire purchase implies ownership by the hirer after all payments.
• Tax Implications: Leasing payments may be considered operating expenses for tax purposes, while hire purchases may offer capital allowances and ownership-related tax benefits. You will most likely also have to pay the VAT upfront on HPs.

Please consult with a professional and qualified tax advisor or your accountant regarding your potential capital allowance and tax benefits specific to you and your business.

Finspire Finance Limited is not authorised and regulated to provide specific advice on tax planning although we can introduce you to suitably authorised entities should you so wish.