Our client bought a commercial vehicle under an HP agreement but has not made the final payment and so did not acquire ownership of the vehicle. We have already claimed the Annual Investment Allowance for our client at the outset.
How is this dealt with for capital allowances purposes?
The normal assumption is that a vehicle bought under a hire purchase agreement will become the property of the hirer once the final payment is made at the end of the lease period.
The regulations allow the capitalisation of the entire expenditure on the vehicle from delivery providing the asset was in business use at the end of the chargeable period.
However, if a payment is not made and the vehicle is not acquired then it is treated as having been disposed of.
In this case, the vehicle had been brought into use, the disposal value is the total of any capital sums received/receivable (if any) by our client plus the amounts yet to be incurred under the contract – in this case this would be the value of the final instalment not paid.
The
principle is to charge sums on which allowances have already been claimed but
which have not actually been paid plus charging any additional sums received.[1]
[1] Reproduced with permission of Croner taxwise