Buying goods on Hire Purchase or Leasing allows:
* you to use an asset over a fixed period in return for regular payments.
* lets you choose the equipment you require with the finance company buying it on behalf of your business.
* usually makes your business responsible for maintenance of the asset.
Leasing means you may never own the asset outright although some lease arrangements lets you buy the asset at the end of the agreement. However, you can often update your equipment without the expense of buying newer models. The business can generally deduct the full cost of lease rentals from taxable income as a trading expense.
With hire purchase, the business owns the asset once all the payments have been made. You can also claim capital allowances against tax from the beginning of the hire purchase contract. Another advantage of hire purchase is that the interest rate you pay will be less than if you needed to get a bank loan or overdraft to buy the item outright.
If your asset appreciates, buy it
If your asset depreciates, lease it
Source: J P Getty