BIM40551 - 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 FRS 102 Section 20 Leases.

Related standards under other frameworks are:

FRS 105 Section 15 Leases

IAS: IFRS 16 Leases (from 1 January 2019), which supersedes IAS 17 Leases

Old UK GAAP: SSAP 21 Accounting for Leases and Hire Purchase Contracts

Further information on accounting for leases can be found in the Business Leasing Manual.

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.