Hire Purchase vs Lease Agreements in Ireland: What's the Difference?

When it comes to acquiring a vehicle, machinery, or business equipment in Ireland, two of the most common financing methods are Hire Purchase (HP) and Leasing. While they might seem similar on the surface, they differ significantly in structure, ownership rights, tax treatment, and flexibility.

1. What is Hire Purchase (HP)?

Hire Purchase is a credit agreement where you hire goods with an option to buy them at the end. It’s commonly used for cars, machinery, and expensive equipment.

Key Features

• You make a **deposit **and then repay the balance in monthly, half yearly or yearly instalments.
• Ownership of the item only passes to you after the final payment is made.
• The item is** not considered yours until the agreement ends**.

**Example: ** You’re buying a piece of Machinery for €20,000. You pay a 10% deposit (€2,000) and repay the remaining €18,000 over three years. Once the final instalment is made, the car is legally yours.

2. What is Leasing?

A Lease is a rental agreement where you pay to use the asset, but ownership typically remains with the leasing company. It’s common for business equipment, vehicles, and IT infrastructure.

Key Features

• You** never own the asset**, unless a specific purchase option is agreed.
• Fixed monthly payments are made over a set term (e.g. 3–5 years).
• At the end of the lease, you may** return the asset, extend the lease, or buy it** (depending on the terms).

Types of Leases:

• Operating Lease: Shorter-term, often without ownership option.
• **Finance Lease: **Longer-term, similar to HP, sometimes includes an option to purchase.

2. Accounting & Tax Treatment in Ireland

Hire Purchase

• Treated as an asset purchase.
• You can claim capital allowances at a rate of 12.5% per year until the asset is written off
• Interest is **deductible **as a finance expense.
• VAT if fully reclaimable on purchase of the asset (if VAT registered individual/company)

  Lease

• Payments are treated as an operating expense.
• No capital allowances, but lease payments are fully tax-deductible.
• VAT is often charged on each payment, not the full amount upfront.

4. Final Thoughts

Hire Purchase

Whether you choose a Hire Purchase or a **Lease **agreement depends on your business goals, cash flow, and long-term needs. Hire Purchase is better for those who want eventual ownership, while Leasing suits those who prefer flexibility and asset turnover.

Before signing any agreement, it’s always wise to:

• Read the terms carefully.
• Consider long-term financial implications.
• Seek professional financial or legal advice.