At a glance: 60‑second comparison

Hire Purchase (HP): Pay deposit + monthly payments → ownership transfers at the end. Good for long-term ownership and high mileage. VAT usually charged on purchase by dealer (subject to reclaim rules).

Finance Lease: Lessor retains title; you pay rentals which cover most of the cost. Lower upfront, may include a purchase option at market value; residual risk can fall on the hirer depending on contract.

Business Contract Hire (Contract Hire / Operating Lease): Fixed rental over term, usually includes maintenance option, strict mileage limits, return vehicle at end. No ownership — lessor bears residual value risk.

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What is Hire Purchase (HP) for vans?

Hire Purchase is a finance agreement where your business pays an initial deposit (often 5–20%) then fixed monthly repayments. Once all payments (including any optional final balloon or option-to-purchase fee) are complete, ownership transfers to your business.

Key points:

• Ownership: You become the owner after the final payment.
• Accounting: The van is typically treated as a company asset on the balance sheet (asset + liability recorded).
• VAT: When buying from a VAT-registered dealer you pay VAT on the purchase price; VAT recovery depends on business use and HMRC rules for vans.
• Tax: Capital allowances can be claimed (subject to current HMRC rules) because your business owns the asset.
• Flexibility: No contractual mileage limits; you control the vehicle once you own it.

Pros: You own the van at the end; simpler for high-mileage; potential tax relief via capital allowances.

Cons: Higher monthly payments than pure renting; you’re responsible for residual value risk and maintenance.

What is a Finance Lease?

A Finance Lease gives your business the use of a van for most of its economic life, while legal ownership remains with the lessor (finance company). Monthly rentals are agreed to cover most of the van’s cost and the lessor usually retains the residual value risk unless the contract says otherwise.

Key points:

• Ownership: Lessor retains title; you may have the option to buy at market value at the end.
• Accounting: Often treated as a finance lease on the balance sheet (recognised as asset & liability) — check current accounting standards.
• VAT: VAT is typically charged on rentals; the treatment depends on supplier structure.
• Tax: Rental payments are usually deductible for corporation tax, but capital allowances may be claimed by the lessor.

Pros: Lower upfront cost than HP; predictable rentals; can include maintenance if agreed.

Cons: Residual value risk may fall partly on you; not automatic ownership.

What is Business Contract Hire (BCH)?

Business Contract Hire (commonly called contract hire or operating lease) is a fixed-term rental agreement. The finance company owns the van and typically bears the residual value risk. Customers pay a monthly rental for the use of the vehicle and return it at the end of the term.

Key points:

• Ownership: Leased vehicle remains the lessor’s asset; you return it at term end.
• Mileage & condition: Strict mileage limits and return condition standards — penalties apply for excess mileage or damage.
• Maintenance: Often offered as a packaged option (servicing, tyres, repairs) for a higher rental.
• VAT: VAT is charged on rentals and partial recovery rules apply for vans — check HMRC guidance.
• Accounting: Often off-balance-sheet as an operating lease under some accounting frameworks, though you should confirm with your accountant under current UK GAAP/IFRS.

Pros: Predictable monthly costs; low administrative burden; less concern over residual value.

Cons: No asset at the end; penalties for exceeding mileage or for excess wear; long-term cost may be higher if you want ownership.

Side‑by‑side comparison

When to call your accountant: confirm VAT recovery, corporation tax vs capital allowances, and treatment on your balance sheet before committing to a product.

Which option suits which business?

Choose based on ownership desire, mileage, cashflow and admin preference.

• Want to own long-term / high mileage: Hire Purchase is usually best.
• Lower upfront cost and possible future ownership: Finance Lease can suit, but check residual terms.
• Predictable costs, low admin and included servicing: Contract Hire is ideal for businesses that prefer to return vehicles and avoid resale headaches.
• Short-term or project-specific need: Short-term leasing or rental may be better than long-term contracts.

Credit profile, cashflow constraints and VAT registration status will influence what lenders will offer. If you’re VAT-registered and reclaim VAT, financing structures can look very different to a non-VAT business.

A worked example — 3‑year cost comparison (illustrative)

Example assumptions: van list price £20,000 + VAT; term 36 months; business is VAT‑registered and can reclaim VAT where applicable. Figures are illustrative — speak to lenders for quotes.

• HP: 10% deposit (£2,000 + VAT), monthly ≈ £520 (no maintenance). Ownership at end.
• Finance Lease: 5% deposit, monthly ≈ £430, potential final balloon payment or purchase at market value.
• Contract Hire: Monthly ≈ £470 (maintenance included), mileage cap 12,000 miles/year; no ownership at end.

What changes these numbers: credit score, precise term, deposits, whether maintenance is included, VAT recoverability and residual value expectations.

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Decision checklist — what to ask before you commit

• Do you want to own the van at the end?
• How many miles will you do per year?
• Are you VAT-registered and how much VAT can you reclaim?
• Do you prefer predictable monthly costs and maintenance packages?
• How will the vehicle appear on your balance sheet?
• What are the early termination terms and likely break costs?
• Who bears residual value risk?

How UK Business Loans helps you compare van finance quickly

We’re a specialist introducer that connects businesses (loans from £10k+) with lenders and brokers who specialise in vehicle and asset finance. Our simple process:

1. Complete a short enquiry (2 minutes).
2. We match you to suitable lenders/brokers based on your profile.
3. Lenders contact you with quotes and eligibility checks.
4. You compare offers and decide — no obligation to proceed.

No obligation. Free, secure and confidential.

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For more detail on vehicle-related options see our specialist vehicle finance page for tailored solutions: vehicle finance.

Important legal, tax and accounting note

This guide is for general information only. Tax, VAT and accounting treatment can change depending on your company structure and the exact finance product. Always consult your accountant or tax adviser for tailored advice.

UK Business Loans is an introducer — we do not lend or provide regulated financial advice. Completing an enquiry is free and no obligation. Quotes are subject to lender eligibility checks and terms.

Useful official guidance: HMRC on VAT and company vehicles and UK capital allowances. (Check the gov.uk site for the latest rules.)

Frequently asked questions

Can I reclaim VAT on a van?

It depends on use and the finance structure — check HMRC rules. Many businesses can reclaim VAT on purchases but recovery for vans is more restricted.

Do I become the owner with Hire Purchase?

Yes — once all payments are completed and ownership is transferred per the HP agreement.

Is maintenance included in contract hire?

Often offered as an optional package; it increases the monthly rental but simplifies running costs.

Which is better for high mileage?

HP or Finance Lease — Contract Hire usually has strict mileage limits and penalties for overuse.

Will applying affect my credit score?

Submitting an enquiry via UK Business Loans won’t affect your credit score. Lenders may run checks later if you apply.

Can I end a contract early?

Yes — but expect exit fees and potential liability for residual values or unpaid rentals.

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Which van finance route should you choose?

There’s no one-size-fits-all. If you want to own and do high mileage, Hire Purchase often makes most sense. If you need lower upfront cost and may want flexibility later, consider a Finance Lease (but read residual/value clauses). If you want predictable costs, low admin and included servicing, Business Contract Hire is usually the right fit — provided you accept mileage limits and no ownership.

Complete the short enquiry and we’ll match you with lenders and brokers who specialise in vans so you can get tailored quotes quickly.

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