Dawsongroup | finance

Explained: Hire Purchase

We know that the world of asset financing and leasing can seem a bit alien to the uninitiated – but we’re here to help. Here is the second of our mini-series of blogs – which together will provide a simple guide explaining the main finance and leasing options open to you. Next up – Hire Purchase!

What does hire purchase mean?

Hire purchase means buying an asset under an agreement whereby you pay for it in instalments over a fixed period of time. At the end of that set period – between one and seven years – the asset transfers into your ownership.

What are the features and benefits?

With deposits starting from £0, this is a great way for a business or individual to have use of an asset, and to purchase that asset, without a big up-front cost.

The amounts payable each month are fixed, making them easier to plan for and manage. These instalments will include interest as well as repayments of principal, and there may also be a balloon payment – a final larger lump sum payable at the end of the fixed term – which the customer would need to account for.

Tax considerations

When you buy business assets you can usually deduct the full value from your profits before tax using your annual investment allowance. With Hire Purchase, you can reduce your tax bill by claiming to write down capital allowances instead – this is when you deduct a percentage of the value of an item from your profits each year. Furthermore, the interest element of the monthly payment can be offset against taxable profit – again cutting your tax liability.

VAT on the asset is payable on day one though– just as it would be if you bought the item outright. But repayments are not subject to VAT.

It’s also important to bear in mind that an asset obtained through a hire purchase contract will appear on your business’s balance sheet for accounting purposes, which may not be the case for all finance options open to you.

Is hire purchase right for me?

The vast majority of our customers go for hire purchase, so we know it is an option which suits plenty of business in various circumstances.

It provides the business with 100% of the benefits of the asset value without a hefty upfront cost and improves their cash flow with manageable monthly payments. This product is flexible too and can be tailored to your business’ operating environment by structuring the payments according to your specific requirements

If you’re still unsure about whether hire purchase is the right fit then get in touch. At Dawsongroup Finance we take time to get to know and understand your business. We’ll talk you through your options, answer every question, and provide the tailored advice and support you need to navigate the world of asset financing like a pro!

Reach us at info@dgfinance.co.uk or by calling 01425 474070.

Don’t think Hire Purchase is right for you? Why not learn about the benefits of a Finance Lease instead?