BIM40551 - Receipts: hire-purchase: accountancy and tax treatment

Traders supplying goods on hire-purchase terms are carrying on a trade of both hiring and selling goods, all receipts from which are revenue trading receipts.

As the goods are trading stock of a trade of hiring and selling, the trader’s (the hire-purchase lessor’s) costs of acquiring or manufacturing them are revenue expenditure.

Accountancy treatment

Companies carrying on such activities should account for the transactions in accordance with SSAP21. If the hire-purchase contract is of a financing nature (see BIM45355) it should be accounted for as set out at paragraphs 145-149 of the SSAP21 guidance note (‘Leasing by manufacturers or dealers’).

Tax treatment

Profits computed in accordance with SSAP21accounting treatment should be followed for tax purposes.

Some unincorporated hire-purchase traders may prepare their accounts on the basis of a long standing practice agreed with relevant trade associations such as the Hire Traders Protection Association (see BIM40555). Where there is a settled practice of accounts prepared on such a basis being accepted for tax purposes, please refer the case to CT&VAT (Technical) before contending that the basis used should be changed.