How account for VAT on Finance Lease

Forum Categories GENERAL VAT DISCUSSIONS How account for VAT on Finance Lease

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    I hope someone can help me out m thanks!
    Client has purchased a few computers on finance lease for £5,800 including VAT.  Lease rentals are £204 per month plus VAT.  I understand that with finance lease, VAT is reclaimed monthly on rentals.  What happens to the VAT on the cost of the computers?

    Dr Asset     £4,936-17 (exc VAT)

    Cr Lease Creditor   £5,800-00

    Dr ?????   £863-83 (VAT)



    Hi there

    The issue of VAT on finance leases is now slightly complicated than in the past years. Firstly the VAT treatment of a lease is not affected by the accounting treatment which follows accounting standards. Secondly following the Mercedes-Benz
    Financial Services UK Ltd case (Case C-164/16), it is a requirement to look at the what the leasing contract says in terms of ownership of the computers. 
    This article can help you in making the correct decision:

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