Balancing act

My query concerns balancing allowances. As a starting point let’s say trader A buys a car costing £21 000.

He obtains the maximum hire purchase (HP) facility to do so and this is to be paid off over a four-year period.

If after the HP period he gave the car away – for example to a family member – the open market value at that time would be taken into account in calculating any balancing charge or allowance.

My question is what would happen if after say two years had elapsed he had instead decided to give back the car as per his HP agreement at a point when say £11 000 HP (capital interest and option fees etc.) is the outstanding balance.

From an accounts point of view the £11 000 will be the disposal value giving rise to a...