Van Finance for Tradespeople: Lease, PCP, HP or Buy Outright?

The 4 options at a glance

Hire purchase: how it works for tradespeople

With HP you pay a deposit, then fixed monthly payments. At the end of the agreement (typically 3–5 years), you own the van outright after paying a small option-to-purchase fee (usually £1–£10).

Tax treatment: HMRC treats the van as your asset from the start of the agreement. You can claim a 100% first-year allowance (FYA)on a new van — meaning the full purchase price comes off your taxable profit in year one. For a £25,000 van, that's a £25,000 deduction, saving you around £5,000–£6,250 in tax depending on your rate.

For used vans, you can still claim capital allowances — 18% per year on the written-down value under the main pool (annual investment allowance covers the full cost up to £1 million for most small businesses).

Note: the finance interest payments on HP are also deductible as a business expense.

PCP: lower monthly payments, no automatic ownership

Personal contract purchase works like HP but with a large “balloon” payment at the end, which means your monthly payments are lower. At the end, you can pay the balloon and keep the van, hand it back, or use any equity as a deposit on a new one.

Tax treatment: HMRC allows capital allowances on PCP, calculated on the full asset value (not just the deposit and monthly payments). However, the tax treatment of the balloon payment can be complicated — speak to your accountant before committing to PCP on a high-value van.

The main advantage is cash flow: monthly payments on a £28,000 van could be £350/month on PCP vs £550/month on HP over 48 months. The trade-off is a large balloon (often £8,000–£12,000) at the end.

Finance lease: the accountant's choice?

With a finance lease, you never own the van. You pay monthly to use it, and at the end the van goes back to the finance company. Some leases allow you to share in the resale proceeds.

Tax treatment:You cannot claim capital allowances because you don't own the asset. Instead, you deduct the full monthly lease payment as a business expense — simple and predictable. For a £400/month lease, that's £4,800/year off your taxable income.

Finance leases suit tradespeople who want a consistent monthly cost, always drive a newer van, and don't want to deal with depreciation or selling the van eventually.

Outright purchase: when it makes sense

Buying outright (cash or savings) makes sense when you can afford it and want zero monthly commitments. The tax treatment is identical to HP — you get the 100% first-year allowance on a new van, or capital allowances on a used one.

It's particularly worth considering for older second-hand vans(under £10,000) where finance costs can exceed the van's actual value over time. A £6,000 van on HP with 10% interest over 3 years costs £7,800 in total — buying cash saves £1,800.

VAT recovery on van finance

If you're VAT-registered, you can reclaim the VAT on the van purchase (HP or outright) in full — 20% of the van price. On a £25,000 van, that's £5,000 of VAT back.

With a finance lease, you reclaim VAT on each monthly payment as it's invoiced — same total reclaim, just spread over time. You cannot reclaim VAT on the finance/interest charges themselves, only on the van cost element.

What affects your approval

As a sole trader, lenders assess you personally (unlike a limited company). Key factors:

• Personal credit score — check it free via Experian or Credit Karma before applying
• Time in business — most lenders want 1–2 years of trading history with accounts or tax returns
• Deposit size — 10–20% deposit significantly improves approval chances
• Existing debt commitments — high personal loans or credit cards reduce what you can borrow

Avoid multiple applications in quick succession — each hard credit search reduces your score slightly. Use a broker who can do a soft search to find the best deal before formally applying.

A worked example: same van, four finance routes