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Deductions available for assets bought on hire purchase

If an asset (eg a machine) is acquired via a hire purchase (HP) agreement, it is simply paid for over a period of time, normally on a monthly basis.

Monthly HP repayments will contain both an interest and a capital repayment element. As with other loan financing, the capital element is not an allowable deduction. However, the interest element is an allowable expense. This is subject to apportionment if the asset is also used privately by the trader.

Capital allowances may be claimed on the capital cost of the asset from the date the HP contract is signed. Ordinarily, ‘ownership’ for capital allowances purposes means absolute ownership in law or equity. While legal ownership of an asset acquired under HP does not pass until the last payment is made and an option fee has been paid, special provisions allow for capital allowances to be claimed as soon as the person is entitled to the benefit of the contract (provided the asset is also brought into use).

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