Business Lease Purchase Deals Explained – leasing4u

Lease Purchase

Traditional vehicle finance

Lease Purchase, a product very similar to Hire Purchase, it is a more conventional funding facility that has been overshadowed in some respects by more recent products such as Contract Purchase or Personal Contract Purchase. Nevertheless traditional Lease Purchase / Hire Purchase has a number of advantages for organisations.

Key customer benefits:

  • Ideal for non-VAT registered companies that require ownership of the vehicle at the end of term
  • Effective budgeting with the flexibility of the Leasing Companies balloon facility. Ownership of the vehicle can be acquired once the balloon has been paid in full
  • Monthly payments are not subject to VAT
  • The vehicle is registered in the name of the customer, when this is a company, the vehicle will appear on the balance sheet and writing-down allowances can be claimed.

Lease Purchase is a dedicated funding product that does not include maintenance or any other value added services. The organisation is liable for the full value of the vehicle and has no option to return it at the end of the contract.

If the agreement is for an LCV (light commercial vehicle) then the full amount for the VAT on the purchase must be paid in advance by the organisation. This is a reclaimable payment providing you are a VAT registered business.

What is Lease Purchase?

Lease Purchase is a hire purchase agreement provided by the Leasing Company regulated by the Consumer Credit Act 1974.

This product is ideal for a Non-VAT registered customer that wants eventual ownership of the vehicle. This is a dedicated funding product that does not include maintenance or any other value added services.

If the agreement is for an LCV (commercial vehicle), then the full amount for the VAT on the purchase must be paid in advance by the oganisation. As this is a 'purchase' agreement you would then be able to reclaim this on your next VAT return (subject to VAT status).

Road Fund Licence is provided for the first 12 months of the contract only.

The vehicle is registered in the organisations name from the start unless the vehicle is a Special Offer and therefore will be registered to the Leasing Company and re-registered prior to 2nd year RFL becoming due.

How does it work?

The vehicle is registered in the name of the organisation, when this is a company the vehicle will appear on the balance sheet and writing-down allowances can be claimed.

However, the Leasing Company does allow a balloon which is based on 90% of their calculated future value based on term and mileage. This allows the organisation to budget more effectively. You only acquire ownership of the vehicle once the balloon payment has been paid in full.

What are the financial benefits?

(a) Tax Allowances

Contract Purchase arrangements are treated for tax purposes as a purchase by the customer when the vehicle is brought into use. As a result the writing down allowance is claimed by the organisation subject to current legislation.

The monthly payments (for depreciation and interest) are not subject to VAT, whereas payments for services bear VAT in the usual way.

What happens at the end on the Contract?

At the end of the term of the Lease Purchase agreement the organisation has a couple of options.

Re-Finance the final rental if applicable subject to credit. (Regulated & Un-Regulated) 28 days notice is required prior to contract expiry date.

You must pay a nominal option to purchase fee to obtain title to the vehicle, which is included in the balloon payment. Title to the vehicle will be transferred on receipt of the option to purchase fee and balloon.

© 2006 - 2017 Blueroc Ltd t/a Leasing4u. All rights reserved

Car leasing credit broker (not a lender) Leasing4u is a trading name of Blueroc Ltd - Registered in England number 05139277 Registered office Unit 4 Mallard Court, Mallard Way, Crewe, CW1 6ZQ; Data Protection Z8611873; Authorised and regulated by the Financial Conduct Authority, Firm Ref No 660124. All information contained in this website is current at the time of publication and whilst the greatest care has been taken over its compilation, leasing4u cannot be held responsible for any errors or omissions. Business Contract Purchase prices displayed do not include the price for RFL which is included in the contract, this additional amount will be shown on your confirmed quotation as a services cost. Please note it is illegal to enter into a finance arrangement on behalf of another person. Carleasing4u and leasing4u are registered trademarks and we may also be know as Car Lease 4u, Carlease4u, carleasingforyou, carlease 4 you. All photographic images are for illustration purposes only and may not depict the relevant model. We are a Leasing Broker Member of the BVRLA and our membership number is 1431. E & OE.