Three Ways to Fund Machinery, and When Each Makes Sense
Ask how to pay for a machine and you will hear three answers: hire purchase, leasing, and refinancing something you already own. All three put kit to work without a cheque for the full amount. They differ in who owns what, how the tax works, and what happens at the end, and choosing between them on those differences, rather than on habit, is worth real money.
Hire purchase is the one most farms know. Pay a deposit, make the payments, and the machine is yours at the end. For capital allowance purposes you are treated as the owner from day one, which means the Annual Investment Allowance can apply to the full cost immediately, a significant advantage in a profitable year. HP suits kit you intend to keep well beyond the agreement: tractors, handlers, trailers, the workhorses that stay on the farm for a decade or more. The trade-offs are the deposit, plus the VAT typically being payable up front, reclaimable in the normal way but a cash flow consideration in the meantime.
Leasing flips the ownership. The finance company owns the machine; the farm pays rentals for its use. Rentals are generally an allowable expense against profit, VAT is spread across the payments rather than paid up front, and deposits are usually lighter. Leasing suits kit you expect to change on a cycle, machines where technology moves quickly, or situations where preserving cash at the outset matters more than eventual ownership. The trade-off is the mirror of HP's: you do not own the machine, and the end-of-term arrangements, return, extend, or sale proceeds, need understanding before signature, not after.
Refinance is the least used and often the most useful. The farm already owns machinery outright, kit bought in better years, now sitting in the yard as idle capital. Refinancing borrows against that value: the lender advances cash secured on the machine, the farm repays over an agreed term, and the machine never stops working. It is the tool for moments when the farm needs cash rather than kit: a tax bill, a bridging gap on a grant project, working capital through a hard stretch, or funds for an opportunity that will not wait. The value was always there. Refinance simply makes it spendable without selling anything.
Which one, then? A rough compass:
* Keeping it long-term and profits are healthy: hire purchase, and talk to your accountant about which year the AIA lands in * Changing it on a cycle, or protecting cash up front: leasing * The kit is fine, it is cash you are short of: refinance
Rough is the operative word. The tax treatment differs meaningfully between structures and between business types, which makes your accountant a necessary voice before committing, and the right answer for the same machine can differ between two farms across the road from each other depending on their profits, plans and existing borrowings.
What matters is that the choice is made rather than defaulted. A farm that puts everything on HP because it always has may be paying VAT up front it did not need to, or buying machines it would have been better renting through their sharpest depreciation. A farm that never considers refinance may be running an overdraft at painful rates while six figures of unencumbered metal sits in the shed.
Buckingham Leasing arranges all three, which means we have no reason to steer you towards any particular one. Tell us about the machine, or the cash requirement, and how the farm earns, and we will lay out the options side by side, with figures, so you and your accountant can pick the structure that fits. The machine is only half the decision. This is the other half.
