Guide · Finance types

Hire purchase or leasing for plant?

Q: Can I end a hire purchase or lease early?

Usually, by paying a settlement figure. Early termination of a lease can be more expensive, so check the terms before you sign.

Both spread the cost of a machine, but they differ on who owns it, when you pay the VAT and how you get tax relief. Here is how to choose for your hire fleet or your own jobs.

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6 min readUpdated 13 October 2026

Hire purchase or leasing: which is better?

The short answer

Choose hire purchase if you want to own the machine and keep it for most of its working life. Choose leasing if you replace kit every few years, would rather not own it, or want to spread the VAT instead of paying it upfront.

Keeping it for years? Hire purchase usually works out better, and you can claim capital allowances.
Upgrading every 2 to 4 years? A lease avoids being left with an ageing machine.
Watching cash flow? A lease spreads the VAT; hire purchase normally needs it upfront.

How each one works

Own it

Hire purchase (HP)

You pay a deposit, then fixed monthly instalments. The lender owns the machine until the final payment, then it is yours.

Deposit, often 10% or more, plus VAT on the machine at the start
Fixed monthly payments over 1 to 7 years
Some agreements have a smaller final "balloon" payment
Ownership passes to you after the last payment, sometimes with a small option-to-purchase fee

Use it

Finance lease

The lender buys the machine and rents it to you. You use it, insure it and maintain it as if it were yours, but you never take ownership.

Usually a smaller upfront payment: often one or more rentals in advance
VAT is added to each monthly rental, not paid upfront
At the end you can keep renting for a small "secondary" rent, or sell the machine for the lender
If it is sold, you normally receive most of the sale proceeds as a rebate of rentals

Side-by-side comparison

Compare	Hire purchase	Finance lease
Who owns it	The lender, until your final payment. Then you do.	The lender, throughout.
Upfront cost	Deposit plus VAT on the full machine price.	Usually one or more rentals in advance, plus VAT on those rentals.
VAT	Charged on the purchase price at the start. VAT-registered businesses reclaim it on their next return.	Added to each rental and reclaimed as you go.
Tax relief	You can claim capital allowances on the machine and deduct the interest.	Rentals are normally deducted as a business expense. The lender claims the capital allowances.
End of term	The machine is yours to keep, sell or trade in.	Keep renting for a small secondary rent, or sell the machine as the lender's agent and receive most of the proceeds.
Accounts	The machine and the finance appear on your balance sheet.	Since January 2026, most leases also appear on the balance sheet for businesses using FRS 102.
Best for	Machines you keep for most of their working life, including used and auction kit.	Machines you replace every few years, or where you want to spread the VAT.

The VAT difference

VAT is often the deciding factor for hire businesses watching cash flow, because the timing is so different.

Hire purchase£17,000

VAT paid at the start on an £85,000 machine (20%). You reclaim it on your next VAT return, so you need the cash for up to three months.

Finance lease£0 upfront

No VAT on the machine price. VAT is added to each monthly rental instead, and you reclaim it as you go.

Example: an 8-tonne excavator at £85,000 plus VAT. Some lenders offer a short-term VAT loan or VAT deferral on hire purchase to ease this. Ask our broker partner.

Tax relief and the 2026 changes

With hire purchase, you are treated as the owner for tax, so you claim capital allowances on the machine. With a finance lease, the lender claims them and you normally deduct the rentals instead.

Annual Investment Allowance (AIA): lets businesses deduct the full cost of most plant, new or used, up to the annual limit.
Full expensing: limited companies can deduct 100% of the cost of new main-rate plant in the year they buy it.
New 40% first-year allowance (from 1 January 2026): covers new main-rate plant, including for sole traders and partnerships, and for machines bought to lease out.
Lower writing-down allowance (from April 2026): the main rate fell from 18% to 14%, so spending that does not get an upfront allowance is relieved more slowly.

Accounts changeFrom accounting periods starting on or after 1 January 2026, businesses reporting under FRS 102 show most leases on the balance sheet, apart from short leases of under 12 months and low-value items. "Keeping it off the balance sheet" is no longer a strong reason to lease for most limited companies. The smallest micro-entities using FRS 105 are not affected.

Check with your accountantWhich option saves more tax depends on your business structure, profits and whether the machine is new or used. Ask your accountant before you sign.

A simple checklist

Hire purchase may suit you if…

You want to own the machine at the end
You will keep it for most of its working life
It is a used or auction machine (see our used and auction guide)
You want to claim capital allowances
You can cover the VAT upfront, or get a VAT loan

A finance lease may suit you if…

You replace machines every 2 to 4 years
You do not need to own the machine
You would rather spread the VAT across rentals
You want to keep cash and credit lines free for other spending
You are happy to sell the machine for the lender at the end

What about operating leases?An operating lease or contract hire is a shorter agreement where you hand the machine back at the end and the lender takes the risk on its resale value. It can suit short contracts or fast-changing kit, and some include servicing.

Common questions

Is hire purchase cheaper than leasing?

Not always. Over the life of a machine, hire purchase is often cheaper if you keep it for years, because you own it outright at the end. Leasing can cost less upfront and suit you better if you replace kit regularly. Compare the total cost of each quote, including fees.

Can I lease used plant?

Some lenders lease used machines, but hire purchase is more common for used and auction kit. Age limits vary by lender.

Can I end a hire purchase or lease early?

Usually, by paying a settlement figure. Hire purchase settlements are often simpler. Early termination of a lease can be more expensive, so check the terms before you sign.

Do I need a deposit?

Hire purchase usually needs a deposit plus the VAT. A lease usually needs one or more rentals in advance. The amount depends on the lender, the machine and your trading history.

Which is better for a new business?

Both are possible. Lenders will look at your trading history and may ask for a larger deposit or extra security. A specialist broker can tell you which lenders are likely to help.

This guide is general information, not financial or tax advice. Plant Hire Finance is a specialist plant hire finance introducer, not a lender or broker. Lenders set rates and terms, and your accountant can advise on tax.

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