378 Cars: provisions as to hire-purchase, etc

Summary

This section provides that, in the case of motor cars costing in excess of the specified amount, where hire-purchase agreements are prematurely terminated without the person who obtained the vehicle on hire-purchase becoming the owner, the payments made on foot of the agreement are to be treated as ordinary hire payments and restricted accordingly under section 377. Also provided for is the apportionment of hire-purchase instalments as between capital and “interest” (the revenue element). The full amount of the “interest” is allowed as a deduction.

Details

(1) The section applies to cars whose retail price exceeds the specified amount.

(2) & (3) Where a contract provides both for the hire and the purchase of a car but the person incurring the expenditure ceases to be entitled to the benefit of the contract without becoming the owner of the car, the payments are to be disregarded for the purposes of renewals allowance, wear and tear allowances and balancing allowances and balancing charges. Instead they are treated as what they have in effect become, that is, pure hire payments and restricted accordingly under section 377.

(4) The part of the payments to be treated as capital expenditure under a hire-purchase agreement is to be equal, broadly, to the open market value of the car at the time the agreement was entered into. The object of this is to safeguard against claims that the capital element should be calculated by reference to the value of the car when the property in its passes, thereby increasing the revenue element in the instalments which is not liable to be restricted.

Relevant Date: Finance Act 2019