Hire Purchase agreements

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How do we know what type of HP agreement we are dealing with? We have a client who has recently taken out a 'sale & leaseback' transaction, so purchased the equipment, raised a sales invoice and sold it to a finance company, then was given a HP purchase agreement. The agreement for a fixed period, with a deposit paid and finance charges but the actual repayments state 'rentals'. Does this require the equipment to be shown as rental of equipment then capitalised when the option to purchase payment has been made (a very small amount), or is the equipment still included on the balance sheet with the corresponding HP liability? It also begs the question as to whether the client can claim annual investment allowence on this? Can't find anything on Gov.uk either....

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By Paul Crowley
24th Oct 2022 16:23

Substance over form
They bought a thing, then arranged some finance.
Start point is VAT. Then just figure out how to deal with the net figures

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Replying to Paul Crowley:
By williams lester accountants
25th Oct 2022 09:12

+1

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Replying to Paul Crowley:
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By sheldon85
25th Oct 2022 10:22

Not sure what you mean, the start point is VAT? :)

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By CJaneH
25th Oct 2022 13:53

Is VAT charged on the purchase or is VAT charged on monthly rental payments.

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Replying to CJaneH:
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By sheldon85
25th Oct 2022 15:06

I'm not sure to be honest, it shows 'financial details' on one part which include the cash price of the equipment with the VAT breakdown, then the rentals on another part which doesn't outline if includes VAT just states 'rentals'.

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John Toon
By John Toon
24th Oct 2022 16:41

Look at FRS 102 - follow the guidance and then make a decision as to what has happened.

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