How Hire Purchase Works
The lender purchases the asset on behalf of the business and immediately leases it under the HP agreement. The business makes fixed monthly capital and interest payments across the agreed term, typically 12 to 84 months. VAT on the full asset price is typically paid upfront (or financed separately). At the end of the term, ownership transfers on payment of a final option-to-purchase fee, usually a nominal sum. The business can claim capital allowances from day one of the agreement.
What Can Be Financed on HP?
Any tangible business asset with a resale value can be financed on hire purchase: commercial vehicles (HGVs, vans, company cars); plant and machinery (CNC, lathes, presses, injection moulders); agricultural equipment; construction plant (excavators, telehandlers, dumpers); marine vessels; medical and dental equipment; catering and hospitality equipment; IT and technology hardware; and renewable energy systems.
Hire Purchase vs Finance Lease
The key difference is ownership. HP results in the business owning the asset at the end of the term. Finance lease keeps the asset on the lender's balance sheet throughout the primary term, with the business leasing it. For assets the business intends to keep long-term, HP is usually the better structure. For assets that depreciate quickly or where the business would prefer to upgrade regularly, finance lease may be more efficient.
Tax Treatment of Hire Purchase
Under HP, the business can typically claim the Annual Investment Allowance (AIA) or writing down allowances in the first year of the agreement, treating the asset as if it had been purchased outright. This is a significant tax advantage over finance lease, where capital allowances pass to the lender. Always confirm the specific tax treatment with your accountant.
Eligibility for Hire Purchase
HP applications require: a specific asset being purchased (new or used); a pro-forma invoice or confirmation of the purchase price; the business to have been trading for 6+ months (some lenders require 12+); directors with no active insolvency proceedings; and the asset to have a clear title available to the lender. Adverse director credit is not automatically a barrier.