What is hire purchase?
Hire purchase, HP, is an agreement under which a finance company buys an asset from the supplier, hires it to the business for a fixed term in return for fixed instalments, and transfers ownership to the business when the final instalment and a small option-to-purchase fee have been paid. Until then the finance company owns the asset and the business has possession and use of it. It is the structure most commonly used in the United Kingdom to buy vehicles, plant and machinery that the business intends to keep.
The word "hire" describes the legal position during the term, not the business’s intention: a hire purchase agreement is a purchase paid for over time, which is what separates it from a lease, where the asset is handed back or the agreement renewed at the end. We have access to a range of UK commercial finance lenders through our principal, White Rose Finance Group Limited. Each lender publishes its own terms, deposits and criteria and makes its own decision.
How a hire purchase agreement runs
The business chooses the asset and agrees the price with the supplier. The finance company pays the supplier and becomes the owner. The business pays a deposit, which is often the VAT on the price plus a share of the net cost, and then a fixed monthly instalment for the term of the agreement, commonly between one and seven years depending on the asset and the lender. On the last instalment the business pays the option fee, usually a nominal sum written into the agreement, and title passes. The interest is fixed for the term, so the instalment does not move with interest rates.
Because the lender owns the asset throughout, it can repossess if the instalments stop, which is why the lender’s decision turns on the asset as much as on the business: its make, age, resale value and how easily it can be recovered and sold.
Who owns what, and when
During the term the lender is the legal owner and the business is the hirer. The business cannot sell the asset without settling the agreement, and a buyer who takes a vehicle still subject to hire purchase does not get good title from the hirer, apart from the protection Part III of the Hire-Purchase Act 1964 gives a private purchaser who buys in good faith. Finance companies register their interest with the asset finance registers that dealers and auction houses check, so a vehicle on HP shows on a history check.
For the business’s accounts, FRS 102 section 20 treats hire purchase as a finance lease: the asset and the liability both go on the balance sheet from the start, the asset is depreciated and the interest element of each instalment is charged to the profit and loss account.
VAT and capital allowances
On hire purchase the supply of the goods is treated as taking place at the start, so the VAT on the full price is charged on the first invoice rather than on each instalment. A VAT-registered business reclaims it on its next return, which is why many agreements ask for the VAT as part of the deposit. On a lease, by contrast, VAT is charged on each rental. The two treatments move the cash in different months, and which one a business prefers is its own decision, often taken with its accountant.
For capital allowances, section 67 of the Capital Allowances Act 2001 treats an asset bought on hire purchase as belonging to the hirer once it has been brought into use, so the business claims the allowances as if it had bought the asset outright, including the annual investment allowance where it applies. The lender, which holds legal title, does not claim them.
What a lender asks for
The supplier’s invoice or proforma naming the asset, its price, its age and its serial or registration number; for a used asset, proof the seller owns it outright; the business’s last filed accounts and recent bank statements; the deposit and where it comes from; and the directors’ details for the personal guarantee that is usual on an agreement with a limited company. Each lender publishes its own minimum deposit, maximum term and the asset classes it funds, and we set out what each provides so you can compare them.
We work with UK limited companies and LLPs only, for business and commercial purposes. Enquiring does not affect your credit score. If you apply to a lender, it runs its own credit search, which may be recorded on your file. We arrange finance only once a business has traded for 3 months, for amounts from £10,000.
Hire purchase against the alternatives
A finance lease leaves ownership with the lender and the business pays rentals, with VAT on each; an operating lease or contract hire returns the asset at the end; a loan buys the asset outright with the lender taking no interest in it. Each carries a different accounting, VAT and tax treatment and a different position at the end of the term. The finance lease answer sets out the lease side; the asset finance page sets the structures side by side, and which one a business uses is its own decision.
Frequently asked questions
Do I own the asset during a hire purchase agreement?
No. The finance company owns it until the final instalment and the option fee are paid. The business has possession and use, carries the insurance and maintenance, and claims the capital allowances, but cannot sell it without settling the agreement.
Can I settle a hire purchase agreement early?
Yes. The lender provides a settlement figure, which is the outstanding capital plus whatever its agreement provides on early settlement; some lenders rebate part of the remaining interest, some do not. Read the clause before signing if the asset might be sold before the end of the term.
Is a deposit always required?
Each lender publishes its own deposit requirement, and on a VAT-registered purchase the VAT is commonly paid at the start. Newer companies and specialist assets tend to carry a larger deposit because the lender’s security in the asset is weaker.
What happens if the payments stop?
The lender can terminate the agreement and repossess the asset, sell it, and pursue the business and any guarantor for the shortfall between the sale proceeds and the balance due, plus its costs.
Is CapExpand regulated?
CapExpand Ltd (FRN 1060885) is a credit broker and an Appointed Representative of White Rose Finance Group Limited (FRN 630772), which is directly authorised and regulated by the Financial Conduct Authority. We are a broker, not a lender. We work with UK limited companies and LLPs only, for business and commercial purposes. If you have a complaint, our complaints page explains how it is handled.
How is CapExpand paid?
We will receive commission from lenders. On some cases we also charge a fee, which we set out in writing and agree with you before you proceed.
More funding questions answered
- What is an arrangement fee?The one-off charge a lender makes for setting up a facility, deducted, paid or added to the loan, and the other fees that sit beside it.
- What is an early repayment charge?The sum a lender charges if a loan is repaid before a date in the agreement, how it is calculated, and how it differs from an exit fee and a minimum interest period.
- What is a director’s loan?Money passing between a company and a director outside salary, dividends and expenses, in either direction: what the Companies Act requires and how a lender reads the balance.
- What do lenders look for in a business loan application?The six things a lender reads before it decides: affordability, trading time, the credit files, the purpose, security or the guarantee, and the conduct of the bank account.
- What is a valuation report?The surveyor’s written opinion of a property’s value prepared for the lender under the RICS Red Book: what it contains, the bases of value, and why the figure decides the loan.
- What is a bridging loan?Short-term borrowing secured on property, repaid in one sum from a defined exit: the four things that define it, what it is for, and what it is not.
Buying kit on hire purchase
The asset, the seller and the price are enough for us to check the case against lenders’ published criteria before anything is sent anywhere.
Sources
Checked 26 October 2026. This page explains the structure of a hire purchase agreement; each lender publishes its own deposit, term, rate and criteria, and nothing on this page is a quote or tax advice.
CapExpand Ltd (FRN 1060885) is a credit broker and an Appointed Representative of White Rose Finance Group Limited (FRN 630772), which is directly authorised and regulated by the Financial Conduct Authority. We are a broker, not a lender. We work with UK limited companies and LLPs only, for business and commercial purposes. We do not provide financial advice.