Assets like cars, machinery, or plant equipment can be a substantial investment for any company. When using hire purchase, business owners often face paying the full Value Added Tax (VAT) amount upfront. In this blog post, we’ll explore VAT deferral and how it can coupled with hire purchase to make acquiring vital assets more affordable.
Hire Purchase: A Quick Overview
Hire purchase is a popular option for businesses looking to buy assets without making the full payment upfront. It typically involves three main components:
- Down Payment: Your business pays an initial deposit, usually a percentage of the asset’s purchase price.
- Repayment Period: The remaining cost of the asset, plus interest, is paid off in regular, fixed instalments over a specified period, which can range from months to several years.
- Ownership Transfer: Once the final instalment is paid, ownership of the asset is transferred to your business.
Hire purchase eases the burden of a large lump sum payment but it doesn’t provide relief from the upfront VAT obligation. While the VAT is fully recoverable for VAT-registered businesses, this initial payment of VAT can be tough to swallow. This is where VAT deferral comes into play. So what is a VAT deferral?
What is a VAT Deferral in the Context of Hire Purchase Finance?
A VAT deferral programme exists for eligible businesses to postpone the payment of the VAT associated with the purchase of assets. The VAT payment can be delayed for 3 months. This means you can retain the use of the cash that would normally have gone to HMRC. There is an interest charge for this option, however, it can still benefit your business.
Benefits of Combining VAT Deferral with Hire Purchase Finance
- Improved Cash Flow: VAT deferral ensures that you’re not burdened with a large VAT payment upfront, making it easier to manage your business’s cash flow.
- Enhanced Financial Flexibility: Your business retains more capital, allowing you to invest in other opportunities or handle unexpected expenses.
Hire purchase is a valuable tool for acquiring your business assets without a substantial upfront cost. When coupled with VAT deferral, it becomes even more attractive. By providing relief from the immediate VAT payment it allows for improved financial management. If you’re considering hire purchase for your business, be sure to explore the VAT deferral programme to maximize your financial flexibility and make your asset acquisition journey smoother and more cost-effective.