The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
If an asset (eg a machine) is acquired via a hire purchase (HP) agreement, legal ownership of the asset passes to the company at the date the contract is signed. The company will simply pay for the asset over a period of time, normally on a monthly basis.
Monthly HP repayments will contain both an interest and a capital repayment element. The capital element is not an allowable deduction. The interest is a deductible expense.
Capital allowances may be claimed on the capital cost of the asset from the date the HP contract was signed (see below).
Contrast an HP agreement with a leasing arrangement where a company is borrowing an asset owned by someone else.
Costs incurred in leasing or hiring an asset to be used in the trade will be allowable.
There are two ways in which a company will lease an asset and account for it under UK GAAP:
In both instances, the asset is being borrowed from someone else (ie no legal ownership changes hands), so no capital allowances can be claimed by the lessee using the asset.
There is therefore a difference between an operating lease and a finance lease in respect
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