Hire Purchase

A Hire Purchase is a conditional sale agreement where the customer agrees to purchase the vehicle in return for making a number of fixed payments. A typical Hire Purchase agreement has a low deposit (Normally equivalent 10% of the Capital Cost of the vehicle) followed by a number of fixed monthly payments typically over 24, 36, 48, or 60 months. When the final payment is made the ownership of the vehicle passes to the customer.The vehicle is registered in the customers name and they are taking the full risk of depreciation and disposal of the vehicle.

Key Benefits:

           Low Deposit
           Fixed monthly cost

Taxation and Hire Purchase:

 VAT

 Under a Hire Purchase arrangement the vehicle is always registered to the customer, whether a business or private individual and therefore no VAT is reclaimable.

 Corporation tax and Income Tax.

 When a business purchases a vehicle under a Hire Purchase arrangement they are entitled to claim Capital Allowances. The amount of the capital allowances claimable for each vehicle is restricted to £3000 per annum except in the year of disposal when a balancing allowance is claimable.

 Example : 

If a vehicle was purchased for £20,000 and sold 3 years later for £10,000 the timing of the Capital allowances would be: 

                        Year 1             £3000
                        Year 2             £3000
                        Year 3             £4000

The total amount that the vehicle has depreciated during its ownership is allowed against profits for taxation although the timing of the tax relief is waited towards the last year of ownership.

The interest element of the Hire Purchase payments is wholly allowable against tax.