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HMRC internal manual

Business Income Manual

Specific receipts: hire-purchase: old practices

Unincorporated traders who deal in goods on hire-purchase terms may have consistently adopted one of the following methods in their accounts and in computing their profits for tax purposes in the past:

  • bringing the whole profit into account at the date of the agreement; or
  • bringing into account as profit at the date of the agreement the excess of the price at which the goods would have been sold for cash over their cost, and spreading the balance (representing the hire element) at an equal rate over the term of the agreement; or
  • spreading the whole profit over the term of the agreement.

Where there is a settled practice of profits shown by accounts prepared on these or similar bases being followed for tax purposes, please refer the case to Business Profits before contending that the basis used should be changed.