Commercial Structures
How Assets Are Financed.
Asset finance is not a single product. Different machinery and business circumstances demand different structures. Compare ownership, tax treatment, VAT, and balance sheet impact below.
The Four Primary Asset Finance Structures
Select any structure to read a comprehensive educational guide covering ownership mechanics, accounting standards, and worked commercial scenarios.
Hire Purchase
The business pays instalments over a fixed term and owns the asset outright at the end. The asset appears on balance sheet from day one with capital allowances claimable.
Finance Lease
The finance provider owns the asset. The business leases it for its economic life and benefits from use without upfront VAT capital outlay. Retain up to 95% of resale value.
Operating Lease
Short-to-medium term lease where the lender takes full residual value risk. Return or upgrade the asset at term end with minimal balance sheet exposure.
Asset Refinance
Release tied-up equity in assets already owned. The equipment is sold to a finance provider and leased back, providing immediate liquid cash for business growth.
Key Structural Distinctions
Compare ownership, tax position, and accounting implications across all four structures:
| Commercial Feature | Hire Purchase | Finance Lease | Operating Lease | Asset Refinance |
|---|---|---|---|---|
| Legal Ownership | Transfers to business upon final option fee | Lender retains title; business benefits from use & sale rebate | Lender retains title throughout; returned at term end | Transfers to lender then returns to business at term end |
| VAT Treatment | 100% VAT payable upfront or deferred to month 3/4 | VAT charged incrementally on each monthly rental | VAT charged incrementally on each monthly rental | Typically structured to be VAT neutral on used assets |
| Balance Sheet Treatment | Capitalised as Fixed Asset with corresponding debt liability | Right of Use asset & lease liability under IFRS 16 / FRS 102 | Right of Use asset under IFRS 16; operating cost for small entities | Replaces fixed asset with cash equity and finance liability |
| Tax & Capital Allowances | Business claims Capital Allowances (AIA / Full Expensing) | Monthly rentals generally deductible against taxable profit | Rentals generally 100% deductible as operational overhead | Tax treatment reflects underlying asset write-down & interest |
| Typical Term | 12 – 72 months (up to 84 months for specialist plant) | 24 – 60 months (with secondary peppercorn option) | 12 – 48 months (matched to specific project or refresh cycle) | 24 – 60 months (based on remaining working economic life) |
| Residual Value Risk | Business carries all depreciation & resale upside/risk | Business typically receives 90–95% of net sale proceeds | Lender carries 100% of residual value & market risk | Lender advances 60–80% of independent orderly liquidation value |
| Best Suited For | Long-life assets, permanent fleet, high capital allowance claims | Preserving upfront cash, commercial vehicles, planned upgrades | Fast-depreciating technology, fixed contracts, minimal commitment | Releasing working capital from unencumbered machinery already owned |
Regulatory Disclaimer: The comparison table and structural definitions on this page are provided for educational and illustrative purposes only. TAFM does not provide financial, legal, or tax advice. Accounting and tax treatments depend on the individual circumstances of your business and prevailing HMRC / UK GAAP rules. We recommend consulting your qualified accountant or tax adviser before entering into any finance commitment.