HP and finance leasing

By Tolley
  • (Updated for Budget 2020)
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The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • HP and finance leasing
  • Assets bought on hire purchase (HP)
  • Leasing costs
  • Long funding leases
  • Car leasing ― lease starts before 1 April 2009
  • Car leasing ― lease starts on or after 1 April 2009

This document covers these in detail, along with their tax treatment; difference between an operating and a finance lease; long funding leases; car leasing pre/ post-April 2009 and changes post April 2013.

 

 

Assets bought on hire purchase (HP)

If an asset (eg a machine) is acquired via an HP agreement, 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 is signed. Ordinarily, ‘ownership’ for capital allowance purposes means absolute ownership in law or equity. While legal ownership of an asset acquired under HP does not pass until the last payment is made and an option fee has been paid, special provisions allow for capital allowances to be claimed as soon as the person is entitled to the benefit of the contract (provided the asset is also brought into use). 

CAA 2001, s 67

Leasing costs

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 as

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