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Treatment of Kennet Leasing

Anyone else come across these Hire Agreements?

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I've recently come across a handful of client's Hire Agreements from Kennet Leasing. Not sure I've been correctly treating and wondered if anyone else has come across these?

Agreement is called Hire Agreement and is paid by several all equal installments + VAT. I've always believed that VAT = operating lease with payments to P&L and revenue expense for tax.

However, second client now tells me that they'll keep the assets after the final instalment which seems to indicate finance lease - i.e. capital and AIA for tax.

Can anyone help? Is my presumption about VAT wrong? What is the correct accounts and tax treatment? Thanks.

Replies (4)

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By Les Howard
30th Jan 2018 16:31

With VAT, I would expect a hire agreement to be 'plus VAT' where title does not pass.
If the recipient purchases the product then the time of supply is up-front, and all the output tax is nue at that time.

Thanks (1)
Replying to leshoward:
By chewmac
30th Jan 2018 21:11

Thanks for your reply. But I can confirm the confused arrangement. VAT on monthly payments yet client keeps equipment at the end! I’m wondering if I’ll have a situation where accounting and tax treatment should differ.

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Replying to chewmac:
By atleastisoundknowledgable...
30th Jan 2018 23:30

Is it a balloon payment at the end?

If so, it’s an operating lease (P&L) with an option to purchase on completion. If they take that option (ie make the final large payment), capitalise it (& AIA) at that point and that value.

Thanks (1)
By chewmac
31st Jan 2018 09:19

Thanks for replies. There's no balloon payment.

I can now add a few more details to the arrangement:

Kennet Leasing Co buy's the equipment and leases to my client. Lets say equipment base cost is £10,000 -
then total lease payments will be around £12,000. The last payment is deemed to have bought the equipment. Client keeps equipment. All payments, inc first (i.e. no deposit) and last are equal and include VAT.

It's just such an unusual agreement in my experience.

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