Just looking through the records my client has given me for the month and I've got a lease agreement for a new car. The agreement is in my clients business name (a partnership) and I can also see the first repayment going out the bank account.
I can see that there is VAT included in the payment, but can I simply reclaim this? The client also paid a deposit. Should I treat the payments as a lease or hire purchase agreement - the documentation is not clear? Does it even make a difference?
The best way to determine if it's a Hire Purchase or Lease agreement is to ascertain whether the business will own the car at the end of the agreement. If it will it's a Hire Purchase (HP) agreement. If this is the case the client will be able to reclaim the input VAT on the total purchase price (including the deposit) at the start of the term. The net cost of the car will need to be capitalised and the balance will be the HP creditor. The HP interest element of the repayment can be treated as a P&L expense.
If ownership will not pass to the business then it will be a rental agreement/lease. If this is the case VAT can only be reclaimed on a payment by payment basis e.g. monthly. The net rental payments should be treated as a P&L expense.
