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HMRC internal manual

Business Income Manual

Specific 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

Traders using UK GAAP and carrying on such activities should account for the transactions in accordance with SSAP21 or FRS102 section 20. Companies using international accounting standards should account for the transactions in accordance with IAS17.

Tax treatment

Profits computed in accordance with GAAP 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 (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 Business Profits before contending that the basis used should be changed.