HP vs Operating Lease - Key Differences
| Factor | Hire Purchase (HP) | Operating Lease |
|---|---|---|
| Ownership at end of term | Yes - you own the crane outright | No - crane returned to financier |
| Monthly payment level | Higher (financing full asset value) | Lower (financing asset less residual) |
| Residual value risk | You bear it - you own the crane | Finance company bears it |
| Tax: capital allowances | Yes - claim on owned asset | No (financier claims allowances) |
| Tax: payment deductibility | Interest element deductible only | Full lease payments deductible as revenue |
| Balance sheet treatment | Asset and liability on balance sheet | Off-balance sheet (under IFRS 16, most leases are now on-balance sheet; discuss with accountant) |
| Early termination | Possible - settlement figure applies | More complex - penalty provisions common |
| Best for | Mobile cranes - crane hire companies building fleet equity | Tower cranes (project use) - contractors who don't need ownership |
Worked Example: Liebherr LTM 1090 at £1,200,000
Assumptions: Asset value £1,200,000 | Deposit 10% (£120,000) | Amount financed £1,080,000 | Rate 5.0% APR | Term 60 months | Operating lease assumes 30% residual value (£360,000) retained by financier
Hire Purchase (HP)
- Asset value: £1,200,000
- Deposit (10%): £120,000
- Amount financed: £1,080,000
- Rate: 5.0% APR
- Term: 60 months
- Monthly payment: £20,377
- Total of payments (60 months): £1,222,620
- Plus deposit: £120,000
- Total cost of finance: £1,342,620
- Asset owned at end?: Yes - full ownership
- Residual value benefit: Yours to keep on sale
Operating Lease
- Asset value: £1,200,000
- Deposit (10%): £120,000
- Amount financed (excl. residual): £720,000
- Lender residual (30% / £360,000): Retained by lender
- Rate: 5.0% APR
- Term: 60 months
- Monthly payment (approx.): £13,590
- Total of payments (60 months): £815,400
- Plus deposit: £120,000
- Total lease cost: £935,400
- Asset owned at end?: No - returned to lender
- Monthly saving vs HP: £6,787 / month
Note: Under HP, you own the Liebherr LTM 1090 at end of term. A well-maintained LTM 1090 holds strong residual value - if it retains £360,000 or more at end of the 5-year term, HP is cheaper overall. If the crane is worth less than £360,000 at end of term, operating lease was the better choice financially. Monthly figures are indicative; exact payments depend on lender, credit profile and prevailing rates.
The Key Decision: What Will You Do With the Crane After the Finance Term?
Choose HP if:
- You are a crane hire company that will own, maintain and deploy this crane for 10–20 years
- You want to build fleet equity and asset value in your business
- You intend to sell the crane at end of its working life and retain the proceeds
- The crane is a long-term fleet asset, not project-specific
- You want to claim capital allowances on the asset
- The crane's residual value is likely to be strong (e.g. well-maintained LTM series)
Choose operating lease if:
- You are a contractor who needs a tower crane for a specific project with a defined end date
- You do not want to own or manage the crane once the project completes
- Lower monthly payments are a priority for project cashflow management
- You want to avoid residual value risk - particularly relevant for tower cranes
- You prefer to deduct lease payments as revenue rather than claim capital allowances
- The crane specification you need may differ from project to project
Tax Treatment: HP vs Operating Lease for Crane Finance
Hire Purchase tax treatment: The crane is treated as a capital purchase. You can claim Annual Investment Allowance (AIA) in year one (up to the AIA limit) or writing down allowances at 18% per year on the main pool. The interest portion of HP payments is deductible as a finance charge. The crane appears as an asset on your balance sheet.
Operating lease tax treatment: Monthly lease payments are typically fully deductible as a business operating expense (revenue expenditure), subject to the asset being used wholly for business purposes. You do not claim capital allowances as you do not own the asset. For VAT, payments attract input VAT which is recoverable if you are VAT registered. Operating lease payments are normally simpler to account for than HP.
Important: Tax treatment depends on your specific circumstances, the structure of the lease agreement and applicable accounting standards. IFRS 16 requires most leases to be brought onto the balance sheet for companies reporting under IFRS. Always confirm tax treatment with your accountant or tax adviser before selecting a finance structure.
Crane Finance Structure Decision Guide
| Your situation | Recommended structure |
|---|---|
| Tower crane, single project, contractor | Operating lease |
| Tower crane, crane hire company, multiple deployments | HP or finance lease |
| Mobile crane, crane hire company, long-term fleet | HP |
| Mobile crane, contractor, project-specific | Operating lease or HP depending on reuse plans |
| Crawler crane, infrastructure company | HP (often long-lived asset) or structured finance |
| Rough terrain crane, construction SME | HP (typically long ownership period) |
| Fleet of mixed cranes, regular fleet turnover | Finance lease or fleet operating lease facility |
Discuss the Right Finance Structure for Your Crane
We will advise on whether HP or operating lease is better for your specific situation - crane type, intended use, business profile and tax position - and then find the most competitive lender for the chosen structure.