Hire Purchase
A fixed cost, fixed period loan to support purchase. The user is effectively the owner but title does not pass until the loan is fully repaid. It is on-balance sheet for the user. As they constitute loan repayments monthly payments do not carry VAT. The capital cost can be written down for tax purposes on a reducing balance basis with up to £3,000 capital allowances available against taxable profits per annum. Interest (usually without limit) is also allowed against tax. These allowances may be restricted if there is an element of private use.

Contract Purchase
This is a conditional sale agreement, structured as the user contracting to purchase the vehicle over a set period of time. It typically incorporates full maintenance (like Contract Hire). There is usually a final balloon payment (i.e. a single large final payment), after which legal ownership passes to the user. In practice most users do not make this final payment, opting instead to return the vehicle to the finance company, thereby avoiding the burden of disposal. The repayment figures and the maintenance element are based on time and mileage. Like other purchasing schemes the vehicle is purchased inclusive of VAT and repayments do not carry VAT except for the maintenance element, of which 100% is recoverable.