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Company Finance lease / HP but in the name of the wrong person

Company Finance lease / HP but in the name of...

I've just acquiried a new client, who either isn't terribly bright, or is trying to be clever and not doing it very well. They started up a limited company and needed a van (which they have represented is 100% business use). When I come to look at the finance lease however, it is in the name of one of the directors parents. This individual is neither a shareholder or employee of the company. I've confirmed that the vehicle itself is registered in the name of the company. It is paid through the companies bank account.

For the accounting treatment I'm reasonably happy. Commercial substance over legal form. Put the lease on the balance sheet and (my judgement) classify it as due withing 1 year since they havn't put the correct details on the form.

The corporation tax issue is however more difficult. The lease isn't in the name of an officer of the company which means an expense claim would be difficult. You could charge rent from the parent to the company but that seems like an extremely round about way of doing things, especially given the lease payments themselves are made out of the companies bank account.

There seems to be guidance on the situation where landlords create a lease to directors personally, but this seems to be in relation to VAT and directors, rather than to the current situation.

Does anyone else have experience of a similar mess to this?

Thank you.


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07th Jan 2012 18:42

would the lease go on the balance sheet?

I dont have much experience with leases so this might be a thought provoker rather than an answer.

You mentioned that you put the lease on the balance but I think that if you were going to do this then the car would be on the balance sheet also? (depending of course of the substance over form)

Therefore the repayments would go towards reduction of the liability with a small amount going to the profit and loss as interest.

If the car is not going on the balance sheet then its probably best to just disclose it as non-cancellable lease stating the amounts under 1 year, between 1 and 2 years, between 2 and 5 years and over 5 years instead of providing for the full liability.

As for the expense, if the van is used 100% for the business there shouldnt be any problem with claiming the expense the same with any other re-charged cost.

Hope this helps and doesnt hinder





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