I am a sole trader using cash basis accounting. I have purchased a new van for work. I paid £15,000 deposit and the rest on hire purchase (HP) for four years. How do I claim this on my tax return? Do I claim the deposit as an expense and then claim the monthly payments in the year they are made?  

Arthur Weller replies:  

When an asset is purchased under a HP agreement, the expenditure is regarded as incurred as soon as the asset comes into use, even though the asset is not strictly owned until the option to purchase payment is made. The HP charges are not part of the cost but are allowed as a business expense, spread appropriately over the term of the agreement. See HMRC’s Capital Allowances Manual at CA23310. The fact that you use cash basis accounting does not change this regarding the purchase of your new van.