email usAccounting and Taxation Issues
For accounting purposes, leases are divided between finance leases and operating leases. A finance lease is a lease where the risks and rewards of ownership are transferred to the lessee. An operating lease is a lease other than a finance lease.
If you are leasing equipment and the lease is categorised as a finance lease, for accounting purposes the asset will be included on your balance sheet. However, the legal ownership stays with the lessor until title passes at the end of the lease. As the lessee you are not able to claim capital allowances or first year allowances on the equipment.
The good news is that lessees can claim the full lease rental payment as a revenue expense, allowable against profit for tax purposes. This applies irrespective of whether the lease is deemed to be a finance lease or an operating lease.
In general, VAT added to leasing charges can be reclaimed by registered businesses in the same way as other VATAs. The taxation treatment of leases can be complex. It is highly recommended that you seek professional advice before entering into any contract.
