Capital Allowances on Truck Finance
Hire Purchase (HP)
The haulier is treated as the economic owner of the truck for tax purposes from day one (even before legal title transfers). Capital allowances can be claimed - typically the Annual Investment Allowance (AIA) up to the AIA limit, then Writing Down Allowances (WDA) thereafter.
Finance Lease
The lender retains legal ownership. The haulier cannot claim capital allowances. Instead, the lease payments are deductible as a business expense. This can be beneficial for businesses with limited AIA capacity.
Contract Hire (Operating Lease)
Treated as a business expense - lease payments are deductible. No capital allowances. Vehicles do not appear on the balance sheet (IFRS 16 exception: operating leases now appear on balance sheet for IFRS reporters - consult your accountant).
VAT on Truck Finance
- HP: VAT is payable on the purchase price of the truck (at point of sale / finance drawdown). Most hauliers are VAT registered and reclaim input VAT. The finance charge (interest) is VAT-exempt.
- Finance Lease: VAT is payable on each monthly lease payment (not on the whole vehicle price upfront). Cash flow advantage for VAT-registered businesses with VAT quarterly returns.
- Contract Hire: VAT on each monthly payment. Same treatment as finance lease.
Road Haulage Vehicle Excise Duty (HGV Road Tax)
- HGVs of 12t GVW and over pay the HGV Road User Levy alongside Vehicle Excise Duty
- Rates vary by gross vehicle weight, number of axles and suspension type
- The levy is charged in addition to VED, not through fuel duty
Annual Investment Allowance (AIA) - 2026
The AIA allows businesses to deduct the full cost of qualifying plant and machinery (including trucks) in the year of purchase, up to the AIA limit. The AIA limit has been set at £1 million per year from 1 January 2019 onwards. For most small-to-medium hauliers, the AIA is sufficient to deduct the full cost of truck purchases in the year of acquisition.