How to record an asset bought on hire purchase using the FreeAgent mobile app
This article explains how to use the FreeAgent mobile app to record a capital asset that was bought on a hire purchase (HP) agreement.
- An asset cannot be recorded as purchased on a hire purchase agreement and assigned a recurring bill. If one of these is selected in FreeAgent, the other will not be available.
- Any changes you make using the FreeAgent mobile app will be reflected in the desktop version of FreeAgent.
- The steps below only apply to assets that you're effectively buying, not to those that you're renting or to a scenario such as hiring a car from a car rental company. It can be difficult to distinguish between the two if the legal arrangement for the asset is complex. Please check with your accountant if you're unsure.
1. Add a bill for the asset
Open the FreeAgent mobile app on your iOS or Android device and log in using your FreeAgent login details if prompted. If you’ve accessed the app recently, you may be logged in automatically.
Tap the three-lined 'hamburger' icon at the top-left of the FreeAgent mobile app, select 'Bills' and follow the steps for adding a bill using the FreeAgent mobile app.
Toggle the ‘Paid for via hire purchase’ option.
Enter the date that the hire purchase agreement ends in the ‘Due On’ field, along with the other relevant details for the bill, and select ‘Save’ in the top-right corner.
Tap on ‘Add bill item’.
Select the relevant spending category for the asset.
Tap the ‘Asset life’ field and choose the relevant useful life from the list provided.
Select the relevant category, amount and rate of VAT. If you’re unsure, please speak to your accountant. Find out more about how to record an asset bought on hire purchase when using accruals basis accounting or cash basis accounting.
If your business is VAT-registered, the VAT will be accounted for on the date of the bill, regardless of whether you're preparing your accounts using accruals basis accounting or cash basis accounting.
Once you’re happy with the line item, you can add it to the bill by tapping ‘Add item to bill’ or ‘Save’ in the top-right corner of the screen. Alternatively, if you’d like to add another bill item such as insurance, tap on ‘Add item & add another’ and enter the necessary details.
Find out more about how to add a bill using the FreeAgent mobile app.
2. Explain the hire purchase loan repayments
As you pay off the asset each month, you'll need to explain each payment in your business bank account in FreeAgent once the relevant bank transaction has been imported into your FreeAgent account via a bank feed.
Tap the three-lined 'hamburger' icon at the top-left of the FreeAgent mobile app and select 'Banking'.
Choose the relevant bank account from the list and select the relevant unexplained transaction from the ‘All’ or ‘Unexplained’ tabs.
Select ‘Bill Payment’ from the ‘Explained as’ field and choose the relevant bill.
If you need to allocate some of the repayment as interest, you can change the value in the ‘Amount’ field to the amount of the capital repayment.
Select ‘Explain transaction’ and FreeAgent will create a new unexplained transaction for the remaining amount.
Select this new transaction, select ‘Payment’ in the ‘Explained as’ field and ‘Interest Payable’ in the ‘Category’ field.
Select ‘Explain transaction’ to complete the process.
Repeat this process every time you pay part of the hire purchase agreement until the bill has been paid off in full.