Top Tips on Hire Purchase for Business
If you’re planning to buy a used machine and want to know why most businesses choose Hire Purchase then read our Top 3 Tips for Business Hire Purchase:
Ownership – Tip 1
Hire Purchase is simple. Ownership transfers automatically to you when you’ve paid all of the monthly payments and the option to purchase fee. There’s no need to sell to a third party to take the asset off your books (like a lease) and no debate about the final cost to purchase the machinery because it’s written into the agreement.
VAT – Tip 2
Assuming you’re buying the used machine from a VAT registered business then the VAT is fully recoverable. It does have to be paid up front but providing you get the timing right with your VAT quarter then cash-flow shouldn’t be an issue.
Corporation Tax – Tip 3
Used Machinery financed on Hire Purchase qualifies for The Annual Investment Allowance 2015 which enables you to write off up to £500K of capital expenditure against taxable income in this financial year. This is a very useful acceleration of allowances which will improve your cash-flow no end when your Corporation Tax Bill lands on the mat.
More about Hire Purchase
Hire Purchase is a popular form of Business Finance used regularly by SME businesses to purchase a wide range of items from Vehicles, Plant and Machinery to Furniture, Computers, Tools and Equipment.
Typically a deposit is paid at the beginning of the agreement then the balance spread over a fixed period, anything from 12 to 60 months. Hire Purchase interest can be fixed or variable, depending upon the size of the advance and your specific requirements.
Title to the goods passes to the hirer when the final payment is made making it ideal for businesses that want to keep it simple and ultimately own the goods at the end of the agreement.
From a tax perspective Hire Purchase is good news. The capital cost of any qualifying assets will attract writing down allowances or be offset against the annual investment allowance and the interest element of the loan will also be allowable as a business expense.
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