Outright purchase, hire purchase and finance leasing options for acquiring a car

Consider the situation where a sole trader needs a car to use in their trade. They have seen a nice new red Porsche Boxster that will fit the bill nicely and were about to pay £60 000 to buy the Porsche until their accountant mentioned that there were other ways of acquiring the Porsche which did not involve spending such a large amount of money up front. Now the sole trader is interested to know what these alternative methods are and how they compare – from a tax point of view – with buying the car before making a final decision.

This is a very relevant topic for the ATT examinations and one which is frequently tested in paper 2 so let’s have a look at the options and the tax consequences.

Buying outright for cash

The sole trader spends £60 000 to buy the Porsche outright.

Their accountant...