Hire Purchase of a Van

I bought a van on hire purchase with an upfront payment to cover the VAT I asked my accountant how to deal with this and she gave the following explanation - however I am struggling with how to raise a credit to Nominal Code 2310 (Hire Purchase) - can anyone advise me (in simple terms) how I can do this - thanks

  1. Create a purchase invoice to nominal code of Fixed Assets (code 0050) for the full amount of the van and post the vat on this purchase as well - This will post the VAT for you and post the van as an asset.
  2. Create a credit note to the same supplier as above, this will be for the total amount of the finance (should be the net amount), please post this with a ‘Non VAT’ code and this will need to be posted against a nominal for Finance, Loans, HP (code 2310) - when you post the monthly re-payments, these will need to be posted against the same finance account.
  3. You will then be able to post the deposit paid against the remaining balance of the above invoice when this clears your bank account.

Hi @chrissie1

  1. Create a purchase for the full amount of the van as you would normally Recording your purchases, in the category column, select Motor Vehicles which is the 0050 nominal code.
  2. Raise a credit note against the invoice created in step 1 - Managing credit notes should talk you through this. In the category column change it to Hire Purchase. Make sure this is for the net amount and there is 0% VAT on the credit note.
  3. When you add the deposit into your bank account you can tag this against the original invoice.

I hope all this makes sense but if you have any further questions, please don’t hesitate to ask.

Hi Sian

Thanks for your reply - I am OK with these steps - the bit I am struggling with is allocating the credit note to Hire Purchases as this is not an option in the category drop down list - is there something I am missing?

Hi @chrissie1

Apologies for any confusion, we’ve just checked and noted that the Hire Purchase nominal code is a balance sheet code and isn’t available through the invoice editor.

You could create a custom nominal code which would allow you to do this. It’s also worth checking out @ian_roberts’ post which may also help: Hire purchase steps please - #6 by ian_roberts

That’s the way I usually do it. The credit note I think is a workaround the accountant must use for their usual software not being able to directly pay the invoice from the loan account.

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