Lease Advice

Lease Advice

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We have some vans on a lease that at the end of the lease can't be purchased by ourselves. They have to be sold to a third party.

I presume we write off each monthly payment through the P&L as we don't actually own the vehicle.

Can anybody please tell me if this is correct and the advantages/disadvantages of such a lease.

Thank you very much
Colin

Replies (4)

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By AnonymousUser
13th Apr 2007 15:12

Thanks for your help.

We can not buy the van but can sell to a third party at the end which I really don't undersatnd.

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By La BoIS Saint
13th Apr 2007 14:06

Finance lease
Sounds like a finance lease to me on the limited info. See SSAP21.

Capitalise then interest & depreciation allowed for tax purposes. See SP3/91.

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Euan's picture
By Euan MacLennan
13th Apr 2007 15:02

Operating lease
Sounds like an operating lease to me, in which case you would indeed charge each monthly payment (net of VAT) to vehicle hire in the P&L. This is because not all of the risks and benefits of ownership of the van are being effectively transferred to you from the lessors, as they will still receive the second hand value of the van at the end of the lease.

I am assuming that there is no clause in the contract that the proceeds of the eventual sale of the van will be paid to you. In that case, it would be a finance lease and as Keith is indicating, you would capitalise the van as a fixed asset at its cash price and depreciate it over its useful life; the monthly payments would be split between paying off the cash price over the period of the lease with the balance being charged to the P&L as interest.

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Euan's picture
By Euan MacLennan
13th Apr 2007 16:33

Lease purchase
If you could buy the van at the end of the lease period, it would be a lease (hire) purchase contract, on which you could claim the total VAT on the cash price of the van at the outset and there would be no VAT on the monthly repayments of capital and interest. You would account for it as a finance lease.

If you want to keep the van, you could sell it to a tame third party and buy it straight back from him.

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