Two special sets of circumstances involving hire purchase are
dealt with here.
The
first involves the assignment of the benefit of a
hire-purchase contract.
Normally, if a person buying an asset under a hire purchase
type contract
CA23310 assigns the benefit of the
contract the disposal value is:
These rules could produce unfair results if the anti-avoidance
legislation applies. Then the buyer's qualifying expenditure cannot
be more than the seller's disposal value. If the asset has not been
brought into use by the seller the disposal value takes no account
of the capital expenditure still to be incurred under the contract.
Example Lovell runs a trucking company. He enters
into a hire purchase contract to buy a truck for £50,000. He
pays the deposit of £10,000 but then decides that he doesn't
like the truck, so he does not bring it into use and assigns the
contract to Jackson, a connected person, for £10,000.
Lovell's disposal value is £10,000. Jackson will incur
capital expenditure of £50,000 on the truck (£10,000 paid
to Lovell plus £40,000 still to be paid under the contract).
If the normal rules about assignment of a hire purchase
contract applied Jackson's qualifying expenditure would be
restricted to Lovell's disposal value, £10,000 even though
Jackson will incur capital expenditure of £50,000 on the
truck.
So the normal rules do not apply where a person buying an
asset under a hire purchase contract assigns the benefit of the
contract in a transaction where the provisions of this Chapter
apply. Instead the seller's disposal value is - for the purposes
only of this Chapter:
The seller is treated as incurring any capital expenditure still
to be incurred under the contract in the chargeable period in which
the contract is assigned.
Example In the example above the £40,000
still to be incurred under the contract is added to Lovell's
qualifying expenditure and disposal value. Lovell's disposal value
becomes £50,000 and this is the limit on Jackson's qualifying
expenditure.
The
second involves plant or machinery being acquired
on hire purchase for finance leasing. There is also a departure
from the general rules in this case:
the person is
not treated as incurring the balance of the
capital expenditure under the contract when they bring the plant or
machinery into use - i.e. they do not get the benefit of capital
allowances on expenditure they have in fact not yet incurred;
but
if they assign the benefit of the contract:
- the disposal of the plant or machinery is again the total of any capital sums received as consideration, compensation, damages or insurance for the persons rights under the contract or the asset and any capital expenditure still to be incurred under the contract; and
- for the purposes of bringing that disposal value into account they are treated as if they had incurred the balance of the capital expenditure under the contract.
