Member Since: 11th Apr 2017
19th Jan 2018
I agree, in this scenario there wouldn't be an HP creditor, because it's in the individual's name, but the question is whether it is an asset or an expense in the company accounts. I was more clarifying my understanding of the general position surrounding HP, which you indicate should be expensed to the P&L as payments are made, except for a final payment - I would expect the payments to be split between capital repayments and interest expense, rather than wholly expensed, and I wouldn't expect VAT to be charged by the HP company, as they are purely financing, not selling the asset.
Has the agreement been direct, the company still wouldn't have legal title, but for accounting purposes it would be treated as if it owned the asset on the basis that it is a finance lease, and so the fact the individual doesn't own it to be able to formally sell it is a bit of a red herring in my opinion.
The fact is that there is no agreement between the individual and the company yet, and so there is no definitive answer. However, I suspect the most obvious thing would be for the company to "hire" it from the individual on the same terms, so that risk and reward of ownership still passes to the company, and therefore it is shown as an asset. If the point was that the only reason for doing this was because company couldn't obtain the credit, then it may be that the intention is for everything to flow through so that it has no net effect on the individual.
I think a further point to consider is what the terms of the agreement that the individual signed are, as this may prevent them from onward leasing it, and so care should be taken around how it is disclosed.
19th Jan 2018
Not sure I agree with this. HP is usually a financing arrangement only, with risks and rewards substantially transferred to the lessee, making it a finance lease. Whilst legal title passes upon settlement of the final payment, for accounting and tax it is broadly treated as if you had bought it via a bank loan - capitalised as a fixed asset, with a corresponding creditor. As a result, turning to the VAT comment further down, the VAT is therefore usually charged by the supplier, not the finance company.
The balloon payment is important - because if there is an option to buy, it will often affect the treatment regardless of whether it is taken up. Where it is a pure lease hire, with no option to purchase, then you would normally see a monthly hire charge, plus VAT, and this is when you would have a P&L expense.
Am I missing something?
18th Jan 2018
I agree with the above comments, whether it is stock or investment property is a matter of fact based upon how the carrying value is intended to be recovered - by retention for use in the business or rental income, or through a sale.
If through rental income (unless temporarily until a buyer is found) then it is an investment property, and an appropriation arises. Appropriations to or from trading stock are deemed to take place at market value, so that a trading profit/capital gain arise. Where it is an appropriation TO trading stock, the capital gain can be deferred by election, but there is no corresponding election available for appropriations FROM stock, so a taxable trading profit arises.
18th Jan 2018
I think some of the above comments are a little unfair, as the rules for filing a CT return are not as straightforward as one might think.....although the information above suggests that the answer is the same!
Assuming it is not the company's first period, then yes the deadline also moves to 31 December 2017......but in my opinion that doesn't necessarily mean a penalty had you done things slightly differently!
I believe the timeline is key here. Your original deadline to file the accounts was presumably 31 October 2017. So, had you filed your change of year-end notice on say 30 October 2017, you would have had until 30 January 2018 to file your accounts, and therefore FA98 sch 18 para 19 should keep you penalty free! The fact you filed the accounts in September would suggest that you filed the change of year-end notice before the end of September, in which case you'd only have had until December to file your accounts, so no get out on the CT penalty.