Corporation Tax Act 2010 section 875

Hire-purchase agreements

Section 875 provides relief from the corporation tax charge on capital sums received in connection with a lessee's interest in a hire-purchase agreement, by allowing certain payments already made to be set against the capital sum.

• Where the lease is a hire-purchase agreement and a capital sum is obtained in respect of the lessee's interest, the company must total its non-tax-deductible lease payments and any capital payment made to acquire the lease interest by assignment.
• If that total equals or exceeds the capital sum, no corporation tax charge arises under section 874; if the total is less, it is deducted from the capital sum before the charge is calculated.
• Where the capital sum relates to only part of the lessee's interest, the amounts still unallowed are reduced to a just and reasonable proportion, reflecting how far the payments contributed to the value of what was disposed of.
• Where a company obtains more than one capital sum in respect of the same lease interest, a payment already used to reduce one capital sum cannot be used again against another, and the sums are dealt with in the order they were received.