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FA 15: Treatment when agreement ends: seller acquiring property
or “What happens if a seller gets back property from an ended hire purchase agreement”
You could also call this:

“How to handle the end of a hire purchase agreement if you're a cash basis seller”

When you’re selling something through a hire purchase agreement and you’re a cash basis person, this law explains how to handle the situation when the agreement ends. Here’s what you need to know:

This rule applies to section FA 15, which deals with how to treat the end of a hire purchase agreement. If you’re the seller and you use cash basis accounting, there’s a special way to calculate the purchase price.

The amount that’s treated as your purchase price in section FA 15(2) needs to be reduced. You reduce it by working out how much interest you should have received but haven’t been paid yet. To do this, you use a simple maths formula.

The formula is: accrual income minus income.

‘Accrual income’ means the amount of money you would have earned if you weren’t using cash basis accounting. It’s calculated using one of the spreading methods for payments under the hire purchase agreement. When working this out, you need to imagine that section EW 31 doesn’t apply to you or the agreement in the year the agreement ends.

‘Income’ in this formula means the actual amount of money you’ve received from payments under the hire purchase agreement.

By using this formula, you can work out how much to reduce the purchase price by, which helps to accurately reflect your financial situation when the hire purchase agreement ends.

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Next up: FA 17: Treatment when agreement ends: when buyer is cash basis person

or “How to calculate the sale price when a hire purchase agreement ends for cash basis buyers”
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Part F Recharacterisation of certain transactions
Recharacterisation of certain commercial arrangements

FA 16Treatment when agreement ends: when seller is cash basis person

  1. This section applies for the purposes of section FA 15 when the seller is a cash basis person.

  2. The amount treated as the seller’s purchase price in section FA 15(2) is reduced by an amount for accrued but unpaid interest on the hire purchase agreement calculated using the formula—

    accrual income − income.

    Where:

    • In the formula,—

    • accrual income is the amount of income that would have been derived under 1 of the spreading methods for payments under the hire purchase agreement if—
      1. the seller were not a cash basis person; and
        1. section EW 31 (Base price adjustment formula) did not apply to the seller and the agreement in the income year when the agreement ends:
        2. income is the amount of the seller’s income from payments received under the hire purchase agreement.

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