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Hire Purchase or Lease agreement?

I am trying to determine if my client has taken out a finance lease or hire purchase agreement

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My client has purchased a LCV (so would be classed as plant and machinery, not a car), the paperwork shows he made an inital deposit then has agreed to 60 payments with a small option-to-purchase fee to be added to the final payment. The paperwork calls it a "lease purchase agreement" but my client would like to be able to claim capital allowances. It is my understanding that if this fulls under HP then I can claim capital allowance but if it is classed as a lease I can only claim depreciation and interest charges when calculating CT. Can anyone help please?

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19th Mar 2019 16:44

You can be confident that if it was an HP agreement that is what the paperwork would call it.

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19th Mar 2019 17:02

You need to look at

https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca23310

But from the information in your question I'd say that your client is entitled to claim capital allowances.

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to Wilson Philips
19th Mar 2019 18:05

Good link.

It might be worth the OP taking another look at what is contracted to happen at the end of the agreement.

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By NDH
19th Mar 2019 17:27

Could you look at the VAT treatment and use that to assist in deciding what the substance of the agreement is?

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to NDH
19th Mar 2019 17:57

Surely the VAT treatment should follow the substance and not the other way round?

If you follow the guidance that I linked to it’s relatively clear. Lease purchase is just another name for HP, with a slight twist that is rarely (in my experience) in point.

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By NDH
to Wilson Philips
20th Mar 2019 09:24

My point being was to look at all the information available. If the VAT treatment doesn't match what you'd expect for the type of agreement then information may have been missed elsewhere.

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19th Mar 2019 22:26

Who owns the asset when all the payments are made ?

Usually gives you a good clue.

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20th Mar 2019 08:56

Thank you all for your help!

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