HP and Finance Lease for Road Plant: The Basics
Hire Purchase (HP)
- You own the asset at the end of the agreement
- Asset on your balance sheet from day one
- Claim capital allowances (AIA / WDA)
- Fixed monthly payments - no residual uncertainty
- Can refinance or settle early
Finance Lease
- Lower monthly payments (lender retains residual)
- Lease payments fully deductible as business expense
- Return, re-lease, or sell at end of primary term
- Asset remains with finance company (IFRS 16 lease liability)
- Suits larger contractors managing multiple assets
For most road surfacing SMEs and highway contractors, Hire Purchase is the most common finance type for pavers and cold planers. Road pavers hold their value reasonably well - particularly tracked pavers from Dynapac and Cat - and ownership at term end gives the business a capital asset with residual value. Finance Lease is more relevant for large road contractors managing multiple contracted projects where off-balance-sheet treatment and payment deductibility are priorities.
Worked Example: Dynapac F1000CS Tracked Paver at £320,000
Assumptions: 7-year Ltd company, clean credit, 5-year term
Hire Purchase - 5.5%
Asset price £320,000 Deposit (10%) £32,000 Amount financed £288,000 Rate 5.5% HP Monthly payment ~£5,520 Total interest ~£43,200 Ownership Yours at end
Finance Lease - 5.0%
Asset price £320,000 Deposit £0 (advance rental option) Residual retained ~£64,000 (20%) Rate 5.0% lease Monthly rental ~£4,780 Total rentals ~£286,800 End of term Return, re-lease, or sell
Decision Guide for Road Plant
Choose HP for road pavers if...
You are a road surfacing contractor with a long-term fleet strategy. Tracked pavers from Dynapac, Cat, and Bomag retain value reasonably well over 5–8 years. Owning the paver outright at term end gives you a valuable capital asset worth £40,000–£80,000 depending on model and condition. HP allows you to claim Annual Investment Allowance on the full asset value, which is typically the better tax treatment for most road surfacing SMEs.
Choose Finance Lease for road plant if...
You are a larger road contractor managing multiple contracted projects and you want lease payments deducted as revenue expenditure rather than capitalised. Finance Lease also provides lower monthly payments during the primary term, which matters when managing cashflow across multiple contracts simultaneously. For large cold planers (£500,000+) where the question of ownership at end of term is uncertain, Finance Lease preserves flexibility.
HP vs Finance Lease: Key Differences
| Factor | Hire Purchase | Finance Lease |
|---|---|---|
| Monthly cost | Higher | Lower |
| Ownership at term end | Yes | No (return, re-lease, or sell) |
| Balance sheet | Capitalised from day one | Lease liability (IFRS 16) |
| Tax treatment | Capital allowances (AIA/WDA) | Lease payments deductible |
| Best for road pavers? | Yes - ownership preferred | Better for large contractors |
| Best for cold planers? | Yes for ownership goal | Consider for £500k+ assets |
| Typical rate advantage | Slightly higher | Slightly lower (residual retained) |