Section 681DE: Hire-purchase agreements
1078.This section concerns hire-purchase agreements. It is based on section 784 of ICTA.
1079.This section may be in point if section 681DC(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.
1080.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 person before it obtained the capital sum in respect of that interest, any capital payment made by the person as consideration for the assignment.
1081.Under section 1008 of ITA, the references to assignment in section 681DE(2) are to be read in relation to Scotland as references to assignation, thus making explicit what is merely implicit in section 784(2)(b).
1082.The total found in subsection (2) 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 681DD(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 681DD(4).
1083.Subsection (5) covers the special case in which the capital sum is the consideration for part only of the lessee’s interest in the lease.
1084.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).”
1085.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 5 in Annex 1.
1086.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.
1087.Subsection (8) is a timing rule supplementing subsections (6) and (7).