When buying a new vehicle, it can be hard to decide whether to use hire purchase finance, to lease it or just buy the vehicle outright. How will each one effect your tax and what do they involve? To help you identify which is the best option for your business, we have put together an explanation of each one.
With hire purchase, you will need to pay an initial deposit followed by monthly payments over an agreed period. This option is generally more expensive than leasing, however the vehicle’s ownership will pass to you at the end of the term. You will be able to claim tax relief on the full value of the vehicle, at the date that the agreement starts, and the vehicle is included in your business as an asset. You may have to pay a large deposit or a large final payment to take ownership of the vehicle.
Once money has exchanged hands, you completely own the vehicle. You will be able to claim full tax relief straight away and the vehicle will be included as an asset in your accounts.
Leasing simply involves paying monthly rentals over a certain period. Often a deposit will be required, however at the end you will not own the vehicle and it is simply handed back.
This does give you the freedom to move on to a different vehicle however without the hassle of having to try and sell the old one. You will only be able to claim tax relief on the lease payments made during your accounting period and the vehicle is not included as an asset.
To summarise, the biggest differences are just whether you want to own the vehicle and when you want to be able to claim the tax relief or what funds you have available and when.
If you do not have the cash to purchase the vehicle straight away, then hire purchase or leasing will spread payments and help you to manage your cash flow. If you would like some more tips on managing your business’ cash flow, then take a look at this article.