When businesses purchase assets they normally use finance, it makes sense to conserve your cash and spread the purchase cost over the life of the asset, but how will you choice impact on whether you can claim Capital Allowances, Annual Investment Allowance or Enhanced Capital Allowances.
You can claim capital allowances when you buy assets that you keep to use in your business, for example:
- business vehicles, for example cars, vans or lorries
These are known as plant and machinery.
You can deduct some or all of the value of the item from your profits before you pay tax.
So clearly buying assets without finance or with a business loan is fine as you will definitely own the asset.
The normal assumption is that a vehicle bought under a HP agreement will become the property of the hirer once the final payment is made at the end of the lease period.
Section 67 Capital Allowances Act 2001 (CAA 2001) allows the capitalisation of the entire expenditure on the vehicle from delivery, providing the asset was in business use at the end of the chargeable period.
However, if a payment is not made and the vehicle is not acquired then it is treated as having been disposed of by s67(4).
PCP – Contract Purchase
Under any other finance arrangement it will depend on whether the vehicle is owned or not, usually the documentation will confirm the position but a PCP is considered to be an HP arrangement with a balloon payment. If the end payment is not paid and the option to purchase not taken then that is a disposal and thus a clawback of the allowances claimed.
Contract Hire and Leases
Contract Hire will not pass ownership to hirer so they are not eligible for Capital Allowances.
But the hire costs will normally be tax deductible and generally 50% of car hire VAT can be reclaimed.