Selecting the perfect commercial van for your business can be daunting, especially when choosing from various financing options. Understanding which option best aligns with your financial goals to ensure seamless operations is crucial. Therefore, we have broken down your choices to help you avoid financial pitfalls and make the best decision for your business.
Is lease cheaper than HP? Is it a good idea to lease a van? Is leasing a van tax efficient? Is lease purchase the same as HP? These are common questions that arise when considering your options.
When considering different commercial vehicle options, such as Hire Purchase (HP), Finance Lease, and Contract Hire, it's crucial to understand the distinctions between them.
Hire Purchase (HP)
Hire Purchase, also known as HP, is an option that allows you to own the vehicle outright. This means that you will be responsible for any depreciation but will also retain 100% of the equity when you decide to sell it.
If you choose an HP contract for your van, you can expect lower monthly payments; however, you will need to make a larger upfront deposit. The agreement will be valid for a fixed term, secured against the vehicle. If you are financially able, there may be an option for early settlement.
Under an HP agreement, you will need to pay 100% of the VAT upfront, unlike Finance Lease or Contract Hire arrangements where costs can be spread out. From a tax perspective, you can claim a writing down allowance and interest.
Finance Lease
Finance Lease is an excellent option for those who want to enjoy low monthly fixed term payments while still having the flexibility to settle early and own the vehicle at the end of the agreement. All rental costs under Finance Lease are 100% tax-deductible, and VAT costs can be spread out, making it a preferred choice for many business owners. If you sell the vehicle during the agreement, you'll receive 97.5% of any equity after clearing outstanding debt.
Contract Hire
Contract Hire is a type of vehicle leasing where the ownership of the vehicle never gets transferred to the lessee. Instead, it remains a 'hire' agreement, and the funder bears the residual value risk. The vehicle is returned to the funder at the end of the contract. However, if the lessee exceeds the mileage limit or causes damage to the vehicle, they may be liable to pay additional costs. Therefore, it is essential to understand your exposure and budget accordingly.
Despite not owning the vehicle, Contract Hire has several advantages, such as low monthly repayment costs, minimal initial expenses, spreadable VAT, and 100% tax-deductible rental costs. These benefits make it an attractive option for many business owners.
Ellacott Morris specialises in providing expert financial guidance and seamless solutions to meet your business needs. Contact us for more information.
