Hire Purchase

A hire purchase agreement allows the customer to purchase equipment by a series of payments over a fixed period of time. Once the final payment is made to the lessor along with any associated fees the title to the equipment will pass to the lessee.

  1. Payments can be structured to reflect the customer’s cash flow variations.
  2. A balloon payment or residual value maybe incorporated into the agreement. This will lower the payments over the period of the agreement, however this final payment must be made to the lessor before title to the equipment can pass to the lessee.
  3. VAT on the total value of the equipment is due to be paid with the first payment or deposit, however the vat element can be deferred to coincide with the customers vat return.
  4. A HP agreement will help to preserve the customers cash reserves and allow the purchase of the equipment to be spread over a longer period of time.
  5. The types of asset best suited to this type of agreement are those with a longer life cycle.

Hire purchase helps to reduce the impact of an investment on cash flow by avoiding outright purchase of the asset. Because the customer is regarded as the asset’s owner, it is possible to claim capital allowances against tax on commencement of the hire purchase contract.

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Hire Purchase
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