Hire Purchase is available on a either a
fixed rate or variable rate agreement.
With Hire Purchase, full ownership falls to the hirer,
depreciation is at the owners’ risk and the equipment can be
included as a balance sheet item.
Finance Lease is where the equipment is hired
for the duration of the agreement with each rental attracting
VAT. This rental payment is allowable against taxable profits.
Any equity belongs to the hirer and can be written into a
balance sheet. As this has low initial outlay and can be tax
efficient for companies.
Operating Lease (Hire) is essentially long term
rent, not a capital expense transaction; a method of hiring
assets over periods less than the expected lifetime of those
assets.
Such a lease need not be shown on the balance sheet of the
lessee. Usually the lessor has taken a significant residual
position in the lease pricing and, therefore, must salvage the
equipment for a certain value at the end of the lease term in
order to earn its rate of return.