ABSTRACT
Practitioners frequently ask their accountants whether it is better to lease or purchase equipment; but the answer is not always a simple one. In the majority of cases, however, outright purchase is by far the cheapest method of acquiring equipment. Under the terms of a hire purchase agreement the practitioner will hire the equipment from a finance company for a period of up to three years and will then usually purchase it outright by payment of the option to purchase sum specified in the agreement. There is also the point that the lease rent will include Value Added Tax (VAT) at the prevailing rate, whereas with a hire purchase agreement the VAT is included in the original cost of plant, as it is with a cash purchase. There is no purchase option and theoretically the hirer can never acquire ownership although, in practice, they can usually purchase the equipment through a third party once the primary rental has been cleared.
