Tax tip: Trading deductions relating to leased assets

Various financial models are available for acquiring assets and it is important to understand the differences when claiming relief for the acquisition against trading profits. The methods include outright purchase hire purchase operating lease and finance lease.

Outright purchase (including where the acquisition is funded by a loan) and hire purchase can be considered together. This is because with a hire purchase contract the person acquiring the asset has a legal right to acquire the asset at the end of the contract and so the two are considered to be the same for tax purposes. Even though under a hire purchase contract instalments are paid over the duration of the contract the full amount of the cash price qualifies for allowances when the asset is acquired.

Capital allowances (CAs) will be given and any depreciation charge will be disallowed. But remember that cars are not eligible for...