capital allowances on hire purchase car

capital allowances on hire purchase car

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I have a client who bought a car on HP ie he paid for half of the car at the start, monthly payments for 3 years with an option to make a final payment at the end for full ownership of the car.  I understand that in this case capital allowances are allowable on the full value of the car at the outset.  Can someone let me know what to do if the car is returned to the dealership after 3 years before the final payment is due?  Can the WDV still be claimed until it's gone on the amount he actually paid (I assum not on the full value given that he didn't pay all of it)?  He didn't get any money back  for returning the car back to the dealership.  I haven't come across this before!  Thanks

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By User deleted
24th Jun 2014 12:54

Just like any other disposal

Any liability foregone should be treated as the consideration.

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By Princess1
24th Jun 2014 12:59

Sorry but your wording isn't clear to me.  Does that mean he can continue to claim for the amount he outlaid so far even though he no longer has the car?  Thanks.

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RLI
By lionofludesch
24th Jun 2014 13:08

Sale Price

The answer to your question is no - he no longer has the asset.

Presumably some of the payments under the contract weren't made.  Or he'd've been daft to give the car back, wouldn't he ?

The value of those payments, less any interest content, is your sale price.  How you treat that depends on how you've dealt with the Capital Allowances - is it pooled or a single asset pool ?  Normal rules apply, anyway - sure you're familiar with them.

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By DerekChaplin
24th Jun 2014 13:09

The vehicle has been sold

What the above are saying is that you treat it as a sale, with the sale proceeds being the money that should have been paid but never was.

So if the final installment due was £6500 balance and this was never physically paid as the vehicle was returned, in effect the dealership paid the client £6500 for the vehicle and the client paid the dealership the final instalment of £6500 (so no cash changed hands)

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By Princess1
24th Jun 2014 13:21


Let's say for example that he paid £3k at the start, he paid another £4k in monthly payments (plus interest but let's put that to one side) over the next three years.  Then instead of paying the final £3k in order to have full ownership he returned the car to the dealership for no money.  So obviously no capital allowances can be claimed on that final £3k as he never paid it (and that comes off when I treat that as the sale price).  But there is still some WDV on the £7k he did pay so what do I do with that?  Does it stay in the pool? 

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RLI
By lionofludesch
24th Jun 2014 13:26

Depends

What's in the pool ?  Just the car or other things too ?

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By Princess1
24th Jun 2014 13:30

There are other things but each item has been itemised separately and then totalled so I can isolate it.

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Replying to andy.partridge:
RLI
By lionofludesch
24th Jun 2014 15:44

In or out

Princess1 wrote:

There are other things but each item has been itemised separately and then totalled so I can isolate it.

It's either in the pool or it's not.

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By User deleted
24th Jun 2014 13:34

Isolate it?

Do you understand the concept of pooling? I'm beginning to think that you're way out of your depth here.

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By DerekChaplin
24th Jun 2014 13:34

Private use or pool?

Originally the car cost £10,000 - capital allowances would have been claimed on the full £10,000.

If there was private use of this asset (& it's not a limited company), then it should be a separate asset for capital allowances - the proceeds are then set against any balance brought forward. If there is anything left, the balance is then treated as a balancing allowance (or charge if too much had been claimed)

If no private use then it is in the pool and only the "proceeds" should be withdrawn from the pool. Any balance is effectively carried forward in the pool balance.

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By Paul D Utherone
24th Jun 2014 13:40

If a sole trader

and this is the owners car with a private use then it's presumably in a single asset / private use pool and there will be a balancing allowance or charge on the disposal event.

If it's a staff car for the sole trader, or the business is a limited company, then if acquired after April 2009 it will either form part of the general pool, orbe part of one of the special rate pools for 'clean / dirty' cars, in which case the disposal proceeds will come off the WDV of the particular pool and any balance will drip on until the business ceases.

EDIT - beaten to it

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