Double Entry Accounting for Electric Car

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Hello Everyone,

I am looking to understand the correct double entry accounting method for an electric car leased by a company. The car is leased for a 3-year term and will be returned at the end of the period. Based on my understanding, this situation qualifies as an operating lease.

The HMRC guidance document BLM12020 and BLM00060 suggest that the monthly double entry should look like Dr: Car Expense Cr: Bank. Furthermore, according to the guidelines, there should be no entry on the balance sheet, as the lessee does not bear the risk or rewards of ownership of the car.

Am I correct in my understanding? Or is the double entry more complicated than that?

Any insights would be greatly appreciated. Thank you!

Replies (6)

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By Ruddles
26th Oct 2023 20:45

If it is in fact an operating lease then your analysis appears to be correct. You have not given enough information to allow us to confirm whether it is an operating or a finance lease. But you didn’t ask that question.

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Replying to Ruddles:
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By petit_dav
26th Oct 2023 21:30

From my understanding, it seems to be an operating lease, but I could be mistaken. The contract is titled 'Vehicle Hire Agreement' and has specific terms that point towards it being an operating lease. For instance, there is a predetermined mileage cap that cannot be exceeded, and the car is to be returned at the end of the lease term. Additionally, there is an initial payment covering the first 6 months, and the lease lasts for 36 months.

Would this information be sufficient to confirm its classification as an operating lease?

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Replying to petit_dav:
By Ruddles
26th Oct 2023 21:41

Not really. Whether or not it should be treated as a finance lease largely comes down to the numbers. Ie how does the NPV of the lease payments, applying a suitable discount rate, compare to the value of the car?

If I was asked to bet, my money would be on operating lease but only an examination of all the facts would confirm or otherwise.

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Replying to Ruddles:
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By petit_dav
26th Oct 2023 21:59

Based on the information provided, the total cost of the car on the P11D form is £37,200. The client is obligated to make monthly payments of £382.68 plus an additional service cost of £21 for the next 36 months. The initial payment is calculated as 6 times the monthly rate of £382.68. Following this, monthly payments of £382.68 will be made for the next 35 months. At the end of this period, the car will be returned to the leasing company. Given these terms, it seems even more likely that this would qualify as an operating lease, as the car is not retained by the client and no significant ownership risks and rewards are transferred. Would you agree with this assessment?

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Replying to petit_dav:
By Ruddles
26th Oct 2023 22:09

Yes

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By cinnamint
27th Oct 2023 17:07

Also, note that you can only claim 50% of the VAT on motor leasing.

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