Hire Purchase

Hire Purchase

Hire purchase enables you to secure finance against an asset and pay for that asset in installments. This is a sound option for businesses that would like to own the asset at the end of the repayment term. Although you will not gain title to the asset until the final payment has been made, for accounting and taxation purposes you will be treated as the owner of the equipment. This means that the VAT must be paid upfront on the asset, however you can claim capital allowances and the interest percentage of each payment can be classed as a business expense.

With a HP agreement, the repayments are usually a fixed monthly amount across the duration of the term to provide visibility for budgeting. The total cost of the asset appears on the balance sheet, with payment shown as a liability that reduces over the duration of the contract term.

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