- Hire purchase outcome
- You own the asset at the end
- Leasing outcome
- Usually returned or re-rented
- VAT treatment
- Differs — HP vs lease rentals
- Typical terms
- 2–7 years depending on asset
How hire purchase works
You pay a deposit then fixed instalments covering the asset's cost plus interest; ownership transfers once the final payment (and any option-to-purchase fee) is made. It suits assets you intend to keep long-term and want on your balance sheet as an owned item, useful where residual value or continued use matters.
How leasing works
You pay to use the asset for an agreed period without ever owning it outright, with rentals typically treated as an operating cost. This suits equipment that dates quickly or where you'd rather upgrade every few years than manage disposal of an owned asset at the end of its useful life.
When each option wins
The right choice depends on how long you want the asset and how it depreciates.
- HP wins for assets you'll use to the end of their working life, like plant or vehicles
- Leasing wins for fast-depreciating or fast-changing kit, like IT or some medical equipment
- HP wins if you want the asset as a balance sheet item eventually free of finance
- Leasing wins if you'd rather keep upgrading without disposal hassle
Tax and VAT differences
HP allows you to claim capital allowances since you're treated as the owner for tax purposes, while VAT is usually payable upfront on the full price. Leasing rentals are typically an allowable expense against profit, and VAT is charged on each rental rather than upfront, which can suit cashflow.
Frequently asked
Which is cheaper overall, HP or leasing?
It depends on the asset and how long you keep it — HP is often cheaper if you use the asset for its full life; leasing can work out cheaper if you'd otherwise be left with a low-value asset to dispose of.
Can I claim capital allowances on a leased asset?
Generally no, because you don't own it — the leasing company claims allowances and reflects that in the rental pricing.
What happens at the end of a leasing agreement?
You typically return the asset, extend the rental at a reduced rate, or in some structures have an option to purchase at fair value.
Is a deposit always required on hire purchase?
Usually a deposit of around 10%–20% is expected, though this varies by asset type, condition and lender.
Can I part-exchange under a hire purchase agreement early?
Yes, subject to an early settlement figure, which is common when replacing vehicles or equipment ahead of schedule.
Comparing HP against leasing?
Send us the asset and intended use and we'll model both structures so you can see the real cost difference.
Related reading
Situations this applies to
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