Finance Options

 

Hire Purchase

Advantages

  • Ownership at the end of the agreement
  • Choice of contract period from 24 to 60 months
  • Capital cost of the van can be written-down (unless using the Annual Investment Allowance)
  • Purchase cost may be Corporation Tax deductible through Capital Allowances
  • Interest elements of monthly payments may be Corporation Tax deductible
  • Can benefit from higher residual values
  • Fixed interest rate
  • Effective budgeting with the final payment facility. Ownership of the vehicle can be acquired once the final payment has been paid in full
  • Monthly payments are not subject to VAT
  • The vehicle is registered in the your name, care of the finance company

Disadvantages

  • Outstanding payments appear as a liability on your balance sheet
  • Not VAT efficient
  • Vehicle appears on your balance sheet
  • You are liable for the full value of the vehicle and have no option to return it at the end of the contract
  • Should the agreement be for an LCV (Light Commercial Vehicle) then the full amount for the VAT on the purchase must be paid upfront

Lease Purchase

Advantages

  • Ownership at the end of the agreement
  • Choice of contract period from 24 to 60 months
  • Capital cost of the van can be written-down (unless using the Annual Investment Allowance)
  • Purchase cost may be Corporation Tax deductible through Capital Allowances
  • Interest elements of monthly payments may be Corporation Tax deductible
  • Can benefit from higher residual values
  • Monthly payments can be lowered further through the introduction of a final payment (balloon payment) at the end of the agreement. This can be set at a value equivalent to a forecasted residual value or reduced in line with anticipated wear and tear on the used value
  • Fixed interest rate
  • Effective budgeting with the final payment facility. Ownership of the vehicle can be acquired once the final payment has been paid in full
  • Monthly payments are not subject to VAT
  • The vehicle is registered in the your name, care of the finance company

Disadvantages

  • Outstanding payments appear as a liability on your balance sheet
  • Not VAT efficient
  • Vehicle appears on your balance sheet
  • You are liable for the full value of the vehicle and have no option to return it at the end of the contract
  • Should the agreement be for an LCV (Light Commercial Vehicle) then the full amount for the VAT on the purchase must be paid upfront

Finance Lease

Advantages

  • Fixed monthly rentals
  • Choice of contract period from 24 to 60 months
  • Monthly rentals are up to 100% tax deductible
  • Potential to carry on using the vehicle at the end of the primary lease period. (Sometime called a peppercorn rental).
  • Additional line of finance that may not affect your core banking arrangements
  • No strict mileage or damage penalties (please note that excess mileage and damage to the vehicle will affect its value at the end of your lease)
  • Monthly rentals can be lowered further through the introduction of a final rental (balloon payment) at the end of the contract. This can be set at a value equivalent to a forecasted residual value or reduced in line with anticipated wear and tear on the used value
  • Available option to re-finance the balloon payment over a longer period of time
  • No need to be VAT registered
  • You retain the majority of the equity built up in the vehicle over the contract
  • Ability to settle the agreement early

Disadvantages

  • Risk of fluctuations in the used vehicle market which could be a problem if you have opted for a balloon payment and the value of your vehicle is less than this.
  • Monthly rentals appear as a liability on balance sheet
  • There are operating risks associated with running the vehicle i.e Maintenance and servicing costs cannot be included
  • Risk of negative equity if settled too early

Contract Hire

Advantages

  • Low deposit typically equivalent to 3 monthly rentals
  • Choice of contract period from 24 to 48 months
  • Hassle free - option to add servicing and maintenance, taking away all the hassle of running a vehicle
  • Fixed cost motoring
  • Steady cash flow
  • Free up capital - Get a new vehicle without the up-front costs, freeing up money for you to invest elsewhere in your business
  • No risk - The risk of vehicle depreciation is eliminated. At the end of the contract, the vehicle is simply handed back without worrying about how much it might be worth
  • Less administration - The finance company deals with all the buying, maintenance and selling issues
  • Tax benefits - Reclaim up to 100% of the VAT on all maintenance charges, the lease rental the fees and finance element for commercial vehicles
  • Rentals are up to 100% allowable against corporation tax
  • Road Fund Licence is provided for the full term of the contract
  • The vehicle appears off 'Balance Sheet' as it is owned by the leasing company
  • Maintenance can be included

Disadvantages

  • You will need to estimate the time and mileage for the use of the vehicle
  • No option to purchase the vehicle
  • The cost to terminate the contract early can be expensive
  • If you go over their agreed mileage allowance, excess mileage will be charged for each mile over that is stated in the contract
  • You must look after the vehicles and return in a well maintained condition, if not you will be charged for any damage over and above as stated in the 'Fair Wear and Tear Guide'

Finance Options from Uk Van Supermarket

HIRE PURCHASE

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LEASE PURCHASE

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FINANCE LEASE

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CONTRACT HIRE

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