Section 875: Hire-purchase agreements
2600.This section concerns hire-purchase agreements. It is based on section 784 of ICTA.
2601.This section may be in point if section 873(6) and (7) (sum obtained: exceptions for hire-purchase agreements) do not prevent this Chapter from applying. If this Chapter applies, subsection (1) states the conditions for this section to apply.
2602.Subsection (2) requires the total to be found of:
non-tax-deductible payments under the lease; and
if the lessee’s interest in the lease was assigned to the company before it obtained the capital sum in respect of that interest, any capital payment made by the company as consideration for the assignment.
2603.This total is then compared with the capital sum. If it is equal to or greater than the capital sum, then under subsection (3) the capital sum is treated for the purposes of section 874(4) as £nil. If the total found under subsection (2) is less than the capital sum, then under subsection (4) it is deducted from the capital sum in applying section 874(4).
2604.Subsection (5) covers the special case in which the capital sum is the consideration for part onlyof the lessee’s interest in the lease.
2605.Section 784(4) of ICTA provides that:
““the amount to be deducted … shall be such proportion of the capital expenditure which is still unallowed as is reasonable” (emphasis added).”
2606.Rewriting this, subsection (5)(a) requires the unallowed amount to be reduced to a proportion which is not only reasonable but also just. This is a minor change in the law: see Change 33 in Annex 1.
2607.To prevent double relief, subsections (6) and (7) ensure that if a payment has been taken into account under subsection (2) in respect of a capital sum it cannot be taken into account in respect of another capital sum.
2608.Subsection (8) is a timing rule supplementing subsections (6) and (7).
