Do you know the different benefits between leasing a car and a hire purchase?

One questions we often get asked is – What are the different benefits between my business leasing a car or getting it through hire purchase?

If it is important for you to own your car at the end of the agreement then using a HP agreement is a cost effective way of achieving this. However, you won’t actually own the vehicle until the final payment has been made. In terms of your accounts, the vehicle will be recognised as an asset and tax relief will be available in the form of capital allowances. Relief is also available on the interest charged.  This is charged at a fixed rate so you will know exactly what your payments are for the full term.  However, if you fall behind with the payments the vehicle may be repossessed.

If ownership is not important to you, the typically lower payments of leasing may be more attractive. These monthly payments can be offset against your taxable profits meaning less tax payable.  Assuming the vehicle has some private use 50% of VAT on payments is reclaimable. The vehicle is treated as an ‘off balance sheet item’ meaning a more positive effect on financial ratios. However, most agreements have restrictions on mileage, with extra charges if you breach these. You will also not be allowed to modify your car e.g. fit a tow bar without permission and may have to notify the finance company if going abroad. At the end of the agreement you will be expected to return the car in ‘good repair and condition.’

Your choice, therefore, will be dependent on what your long term intentions are with regards to ownership and use of the car.


This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.

DID YOU FIND THIS USEFUL?

Share it with your network:  

Want more great content?
Sign up to our newsletter

    Follow us

    Tweets by @CHW-accounting

    CHW-Accounting
    @chw-accounting


    Twitter: chw_accounting

    WHAT'S THE NEWS?

    Grab a biscuit and a brew and read our latest news.

    19 February 2024

    Tax changes – What’s new in 2024?

    by

    We are now well and truly into 2024 and before you know it the end of the 2023/24 tax year on 5 April will be upon…


    Read more >

    12 February 2024

    National minimum wage – a quick guide to the...

    by

    The government sets a national minimum wage and a national living wage to guarantee that workers get a minimum standard of pay. It is a legal…


    Read more >

    7 February 2024

    HMRC to target undeclared dividend payments

    by

    HMRC have advised the Chartered Institute of Taxation (CIOT) that they have commenced a ‘One to Many’ letter campaign directed at taxpayers who HMRC suspect may…


    Read more >

    7 February 2024

    One week on from Self-Assessment deadline

    by

    We are now a week on from the self-assessment filing deadline of 31 January and figures show that more than double the number of taxpayers failed…


    Read more >

    5 January 2024

    Cut to National Insurance from 6th January 2024

    by

    From Saturday 6 January, the average earner will be almost £450 a year better off according to the government.  However, the reality is that due to…


    Read more >

    YOUR CHALLENGES

    No matter what your challenge is, we’ve probably dealt with it before.



    Need an Accountant?

    Get in touch >


    Need an Accountant?

    Get in touch >


    Tax issues?

    Find out more >


    Tax issues?

    Find out more >


    Trying to grow your business?

    We can help >


    Trying to grow your business?

    We can help >


    Managing cashflow?

    We can help >


    Managing cashflow?

    We can help >


    Starting a business?

    We can help >


    Starting a business?

    We can help >


    Looking for funding?

    Need help with funding? >


    Looking for funding?

    Need help with funding? >


    Buying or selling a business?

    We can help >


    Buying or selling a business?

    We can help >


    Adopt the cloud?

    We can help >


    Adopt the cloud?

    We can help >


    What else can we do for you?

    We can help >


    What else can we do for you?

    We can help >
    CONTACT US

    Get in touch, no hard sell, just a brew, a biscuit and a chat.