Hire purchase contracts are based on the same principles as a lease – but they are treated differently for tax purposes. Under a lease the lease rentals are tax deductible whereas under a hire purchase contract, the hirer claims depreciation and interest.
These agreements can be extremely flexible. For example, you can keep monthly payments low by making a balloon payment at the end of the contract, or align payments with known future income streams.
Under Hire Purchase, the financier buys the equipment on your behalf – and then you enter into an agreement to repay the cost of the goods, plus interest, in a series of installments. Ownership of the equipment is automatically transferred to you on finalisation of the contract.