Hire purchase (HP) is the most common form of business asset finance in the UK – enabling businesses to acquire vehicles, machinery, and equipment over 2–5 years while spreading the cost into fixed monthly payments. Unlike leasing, hire purchase transfers ownership of the asset to the business at the end of the term. In 2026, business hire purchase rates start from approximately 4% APR for new vehicles with a 20% deposit, making it significantly cheaper than unsecured borrowing for asset purchases.
- Hire purchase covers 85% of UK business asset finance - Most popular method for acquiring vehicles, machinery & equipment nationwide
- Typical rates range from 3.9% to 12.5% APR in 2026 - Costs vary significantly based on business credit rating & asset type
- 100% capital allowances available in first year - Businesses can claim full tax relief on hire purchase agreements immediately
- Finance lease requires 4 additional payments typically - HP ownership transfers automatically, leasing needs separate purchase option fees
- Deposit requirements start from just 10% - Lower upfront costs compared to outright purchase while preserving working capital flows
What Is Hire Purchase?
Hire purchase is a type of asset finance where a business agrees to pay for an asset in fixed monthly instalments over a set term (typically 2–5 years). During the term, the finance company legally owns the asset – you are “hiring” it. At the end of the term, you make a small “option to purchase” payment (often a nominal amount such as £1–£200) and legal ownership transfers to the business. Until that final payment is made, the finance company retains a security interest in the asset.
Business Hire Purchase vs Finance Lease
With hire purchase, you will own the asset at the end of the term – you pay off the full capital cost plus interest, and make a final option-to-purchase payment to take legal title. With a finance lease, you never own the asset – the finance company retains ownership throughout and you return the asset (or arrange a secondary lease) at the end. The accounting treatment differs: HP puts both the asset and liability on your balance sheet from day one; finance leases (under IFRS 16) are also now on balance sheet for most businesses.
HP is preferred when you want long-term ownership; leasing when you prefer to upgrade regularly. For alternatives, see our Asset Finance UK. Our Finance Lease Guide has the latest figures. For a detailed comparison, see our Business Car Finance. Our Secured Business Loans breaks this down further.
| Factor | Hire Purchase | Finance Lease | Operating Lease |
|---|---|---|---|
| Ownership at end | Yes (option to purchase) | No – return or secondary lease | No – return |
| Capital allowances | Yes – can claim on full cost | Yes (under IFRS 16) | No – rental expense deducted |
| VAT recovery | Full VAT on purchase price | On monthly payments (50% for cars) | On monthly payments (50% for cars) |
| Best for | Assets to keep long-term | Tax-efficient, regular replacement | Off-balance-sheet (some treatments) |
Hire Purchase Tax Treatment
Under hire purchase, the business is treated as the economic owner of the asset for tax purposes from the start – even though legal title remains with the finance company until the final payment. This means capital allowances (including the Annual Investment Allowance of £1 million and full expensing for qualifying plant and machinery) can be claimed on the full purchase price in the year of acquisition. The interest element of HP payments is also deductible. VAT-registered businesses can recover the full input VAT on a commercial vehicle HP purchase (50% on cars with any private use).
Hire Purchase Rates UK 2026
Business hire purchase rates in 2026 typically range from 4–12% APR, depending on the asset type, deposit percentage, term, and business creditworthiness. New vehicles with a 20–30% deposit attract the lowest rates (4–6% APR from dealer-arranged finance). Used assets, high-mileage commercial vehicles, and specialist equipment attract higher rates (8–15% APR). With the Bank of England base rate at 3.75%, most HP is priced at base rate plus 0.5–5% depending on lender and risk profile. Always compare the total amount repayable, not just the monthly payment. You can compare options in our Business Finance Costs & Rates 2026.
Pros and Cons
