Vehicle asset finance for UK limited companies: how it works

Vehicle asset finance lets your limited company spread the cost of cars, vans, HGVs or a fleet over monthly payments, with the vehicle as the lender's security. The three main types – hire purchase, finance lease and contract hire – differ on ownership, VAT and tax relief. We explore how to choose the right one for your business and compare providers.

The cash you need on day one depends on the agreement as much as the vehicle. On hire purchase the VAT on the full price is due at the start; on a lease it's added to each rental. On a £30,000 van that's £6,000 of VAT upfront, which a VAT-registered company can usually reclaim on its next return.

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What is vehicle asset finance?

Vehicle asset finance is a way to pay for business vehicles over time: a finance company buys the vehicle and your company pays for it monthly, with the vehicle as security. It covers cars, vans, HGVs, coaches and whole fleets, new or used.

The finance company can take the vehicle back if payments stop, which is also why vehicle finance is often cheaper than unsecured borrowing. iwoca doesn't offer vehicle or asset finance, so this guide covers the options across the market. For equipment or machinery, see our guide to asset finance for equipment and machinery.

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Hire purchase vs finance lease vs contract hire

The difference in these forms of vehicle finance is mainly about ownership. Hire purchase ends with your company owning the vehicle, a finance lease never transfers ownership and contract hire is a long-term rental with fixed running costs.

You can compare hire purchase and a finance lease in more detail in our side-by-side guide.

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Hire purchase: you own the vehicle at the end

With hire purchase, you pay a deposit and fixed monthly payments, and the vehicle is yours after the last payment. Some agreements add a small option-to-purchase fee at the end. Your company claims capital allowances on the vehicle and deducts the interest from its profits.

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Finance lease: you never own the vehicle

With a finance lease, the finance company owns the vehicle throughout and there's no option to buy it. At the end you can keep it for a small secondary rental, or sell it on the lessor's behalf and get most of the sale price back as a rebate of rentals.

Your company takes the risk and reward of what the vehicle sells for. HMRC's leasing manual explains primary and secondary periods.

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Contract hire: a long-term rental

With contract hire, you rent the vehicle for a fixed term and mileage, often with maintenance included, then hand it back. The finance company carries the resale risk, and you pay for any excess mileage or damage. It's the easiest to budget for, but you build up no value in the vehicle.

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VAT and tax relief on a financed vehicle

The VAT and tax relief you get depend on the agreement and on whether the vehicle is a car or a commercial vehicle such as a van. Buying on hire purchase gives capital allowances; leasing gives relief on the rentals.

The rules as of October 2026:

• VAT on hire purchase. VAT at 20% is due on the full price at the start. A VAT-registered company can usually reclaim it on a van, but not on a car unless it's used only for business.
• VAT on leasing and contract hire. VAT is added to each rental. You can usually reclaim 50% on a car available for private use and all of it on a van (VAT Notice 700/64).
• Capital allowances on hire purchase. Cars up to 50g/km of CO2 go in the main rate pool at 14% a year (18% before April 2026); above that, the special rate pool at 6%. New zero-emission cars get a 100% first-year allowance. Vans and lorries can use the annual investment allowance (capital allowances for business cars).
• Tax relief on lease rentals. Your company deducts the rentals from its profits, but for cars over 50g/km, 15% isn't deductible. Vans aren't affected (HMRC lease rental restriction).

Tax treatment depends on your company's circumstances, so check the numbers with your accountant before you sign.

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Financing electric company cars and vans: the 2026 rules

The tax case for an electric company car is still strong, but it has changed: electric vehicles now pay vehicle tax, and the 100% first-year allowance only applies to new zero-emission cars your company owns.

Here's what you need you know:

• First-year allowance. A new zero-emission car bought outright or on hire purchase by 31 March 2027 qualifies, so your company can deduct the full cost that year. A leased car doesn't.
• Vehicle tax. Since 1 April 2025, electric vehicles pay vehicle tax like other vehicles.
• Company car tax. The Benefit-in-Kind rate for a zero-emission company car is 4% in 2026/27, rising to 5% in 2027/28.
• Lease rentals. Cars at 50g/km or less escape the 15% restriction, so the full rental is deductible.

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Financing vans, HGVs, coaches and fleets

Most vehicle finance providers fund vans, HGVs, coaches and fleets, and commercial vehicles get better VAT and capital allowance treatment than cars. Many lenders specialise in one sector, such as haulage or passenger transport.

Here's an overview for each of these vehicle needs:

• Vans. A van usually isn't counted as a car for VAT, so the VAT is normally reclaimable. Our guide to business van finance covers the options.
• HGVs and coaches. Lenders often fund used vehicles too, with age and condition limits that vary.
• Fleets. Ask for one facility that covers several vehicles. It's simpler to manage and quicker to add to.
• Vehicles you already own. Refinancing releases cash from vehicles your company owns outright, but puts them back on the line as security.

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What does vehicle asset finance cost?

There's no standard rate for vehicle asset finance: the price depends on your company's credit profile, the vehicle's type and age, the deposit, the term and any balloon payment. Compare the total amount payable, not just the monthly payment.

Check every quote for:

• Arrangement, documentation and option-to-purchase fees
• Charges for settling early
• Excess mileage and damage charges on contract hire
• A balloon payment, which lowers the monthly payment but adds interest

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Where to get vehicle finance and how to compare providers

You can get vehicle finance from the asset finance arms of the big banks, specialist lenders, brokers and dealer or manufacturer finance. Compare the total cost, the end-of-term terms and the flexibility, then apply with your recent accounts, bank statements and the vehicle details.

Consider which makes most sense for you:

• Banks. Most big UK banks have an asset finance arm. If you bank with one, it already knows your company's finances.
• Specialist lenders. Often focus on one vehicle type or sector, and may fund older vehicles.
• Brokers. Search several lenders for you. Ask how they're paid.
• Dealer and manufacturer finance. Arranged where you buy, sometimes with offers on new models. Compare it with an independent quote.

How quickly you get a decision varies by provider and by how complete your paperwork is.

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Can a new or low-credit company get vehicle finance?

Often yes, but with fewer options and at a higher cost. Lenders may ask for a bigger deposit, a shorter term or a director's personal guarantee, and the vehicle itself as security helps.

A personal guarantee means a director agrees to repay the debt personally if the company can't, so read the terms carefully and get advice if you're unsure.

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Vehicle finance or a business loan: what's right for your business?

For the vehicle itself, secured vehicle finance is often the cheaper choice. An unsecured business loan suits the costs around it, such as the deposit, upfront VAT and fit-out or repairs, or a used vehicle a finance company won't fund.

Take a look at the brief comparison below:

For cars, see our guide to business car loans; for the wider picture, asset finance vs an unsecured business loan.

An iwoca Flexi-Loan isn't vehicle finance, but it can cover the costs around a vehicle. It's a business loan with flexible repayment options: borrow £1,000 to £1m over up to 5 years, draw what you need and only pay interest on what you've drawn, with no fee for repaying early. You'll get a decision within 24 hours, but it might be longer depending on the complexity of the request. iwoca lends to UK limited companies and every new Flexi-Loan needs a personal guarantee from at least one director.

As Ray Iqbal, founder of The Building Co., says of keeping his van on the road: "Every day that van sits in the mechanics, it costs me money. So spend what it takes to get it sorted, and know it's good for the next six months to a year."

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