Lease Treatment
Hi
Getting nowhere on this!
Client Company has lease. Lease is an operating lease however the asset risk and reward is with the client so should be reclassified as a finance lease according to accounting standards.
Lease contract states no Capital Allowances to be claimed by client.
So if it goes in the accounts as a Finance Lease client will only get tax benefit of the interest payments, whereas they should get full relief for the whole lease payments.
Our accounts people adamant that the asset should go on the balance sheet?!
What to do?
Rob
For a start
An operating lease is an operating lease, and a finance lease is a finance lease (yes, I know what you mean and yes, I'm being pedantic).
You've missed the obvious tax feature of a finance lease - in addition to the interest you can also claim the appropriate capital element of the lease payments. Provided it has been calculated fairly, this means you can use the depreciation as an estimate of that capital element and deduct it. You will therefore, over the term of the lease, obtain a full deduction for the lease payments.