Lease Treatment

[rmeredith]

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

[Incredulum]

So in accounting terms, it is on balance sheet. However, as the leasing company - rather than your client - is obtaining the benefit of tax relief through capital allowances, the lease is cheaper than it would otherwise be.

[James Price]

You need to look at HMRC's SP 3/91 - the lessee is permitted to claim the depreciation on the asset as a deduction, in addition to the interest payments.