My client bought a commercial vehicle under an HP agreement but has not made the final payment and so did not acquire ownership of the vehicle. AIA has already been claimed from the outset. How is this dealt with for capital allowances purposes?

The normal assumption is that a vehicle bought under a hire purchase agreement will become the property of the hirer once the final payment is made at the end of the lease period. S67 CAA 2001 allows the capitalisation of the entire expenditure on the vehicle from delivery providing the asset was in business use at the end of the chargeable period.

 However, if a payment is not made and the vehicle is not acquired then it is treated as having been disposed of by s67(4).

 The disposal value is determined by s68 CA 2001. Where, as in this case, the asset has been brought into use, the disposal value is the total of any capital sums received/receivable (if any) by your client plus the amounts yet to be incurred under the contract – in this case this would be the value of the final instalment not paid.

 The principle is to charge sums on which allowances have already been claimed but which have not actually been paid plus charging any additional sums received. An example illustrating such additional sums is contained in HMRC’s Capital Allowances Manual on page CA23330.

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