How account for VAT on Finance Lease

[VATORNOVAT]

Hi,
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)

thanks.

[VAT-adviser]

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: https://www.shlegal.com/docs/default-source/news-insights-documents/download-pdf300e7b85045b6c60befcff000023f0be.pdf?sfvrsn=cb55175b_0

[Author]

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