Hi, I'm really confused by this. I feel a bit embarrassed asking.
A new client who has only set-up in the 2015-16 tax year bought a Van - on a CONTRACT LEASE
Is this initially renting a van? unless they actually buy it at the end of term, in which case is expensed as vehicle rental?
I'm having trouble putting the info together to balance out so I can work out where to post it.(I'm using basic excel spreadsheets as it's only a tiny job and no point putting it into software)
This is all the info that I have
Total amount to pay
11,684.79
Initial payment
1,795.22
Payments 36 x 165.35
5,952.60
(142.22 re-payment, 23.12 maintenance service)
Optional final payment
4,925.00
12,672.82
cash price
10,059.22
total amount of credit
8,429.35
arrangement fee
150.00
If this is to capitalise do I:
Expense the maintenance service and interest paid each month?
How do I claim capital allowances on this? and what amount can I claim on - would it be a percentage of the whole cost price?
I can't work out from these details how much the interest even is
Thanks, to be honest I'm not entirely sure it looks like both to me. Renting for 3 years then the option to buy at the end of the agreement for a fixed price. I've not seen one like this before and it's something I always struggle to work out anyway. I don't see them enough to remember what I did the last time so I go and re-learn how and where to input everything again.
Type of credit: Hire Purchase agreement but on another sheets it say's contract purchase.
I have attached a copy and blanked out all the personal details.
Thanks in advance again for any help on this as usual really appreciated
Rachel
-- Edited by rachel_mclean on Wednesday 27th of July 2016 09:39:56 PM
I don't think the attachment attached as it was too big, I scanned and stuck 4 pages together on 1 PDF so you helpful people wouldn't have to open 4 pages. SO it was obviously too large a file so I have attached the 4 separate pages
Right I've spent a bit more time working this out. It is a HP agreement with the option to buy after 3 years.
This is the journal I've worked out, is there a better way to input the credit interest rather than use an creditor: interest reserve account - this confuses me every time I look at it.
If the client decides not to buy the vehicle at the end, what happens in the accounts?
DR Asset 10,059.22
CR Loan -11,684.79
DR Creditors: Interest reserve 1,625.57
Hi Rachel
No - you were right first time - it is a contract purchase.
After the three years they can pay the balloon payment and keep the vehicle or sell it back at the pre agreed price.
Before you go further with the figures you have just mentioned, dare I suggest you need to go and get some more paperwork. The enclosures state 2 of 3 and 3 of 3, which suggests to me there is a page missing. Plus Ive never seen such a sparsely documented facility - there is usually lots more and the devil is in the detail - the small print, yet there is none!
You mention above £23.12 maintenance, but on the main sheet is states 'none' in this section. So Im wondering if there is a page missing from your attachment/something you know about that we dont or indeed your client has gone back a and re-negotiated which is why things dont add up.
I also dont think the interest you have worked out is correct as the paperwork shows fees and that is too high for the APR. I would be asking for full paperwork (or even phoning the provider)
Ive heard conflicting views on the capital allowances, so more digging is required on that one. Might get back to it this weekend when I hope to have more time (famous last words!)
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
The total monthly payments are 165.34 and include the monthly maintenance of £23.12, I have some monthly invoices here and the total is £165.35 (142.22 and 23.12 service).
I have worked it out to all add up correctly.
What I am having trouble with is how I account for it. Being a contract purchase.
Is it treated as being rented for the 3 years until the time comes when there is the offer to purchase it by paying the balloon payment? and then the balloon payment capitalised as the value of the vehicle? that doesn't sound quite right to me, I have being trying to look at how to account for a contract purchase but nothings coming up.
Thanks for the link. It reads to me that the vehicle is rented but is also shown on the balance sheet. I can't quite get my head around this.
I don't know if it makes an difference but this client does not want a balance sheet, the retired accountant before i took over also did not produce a balance sheet and said that the client did not want nor wanted to pay for the extra work for a balance sheet so he didn't produce. There are previous capital allowance and deprecation calculations though.
So what I need to find out is if I need to claim capital allowances for this or expense what is paid in the tax year.
Hi Rachel
I knew you must have more than I could see!
Do me a favour, if you havent had any luck in your diggings over the next day or two, bump this with a comment say Monday - will remind me to come back to it and see if I can help further. Im on a deadline for a few things for 31st July and rapidly running out of time!
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
I know the 'leasing' market well and you have attached a quote from the broker along with what looks like the pre-contract/SECCI info-type stuff. What you need is the actual contract, which excluding the t&c's will be about 2 (max 3) pages including the signature page.
A Contract Purchase with Leaseplan?Network always includes road fund licence (vehicle will be registered to them) and charged monthly plus vat as they are providing a service. To Leaseplan this is part of the maintenance element for their administration, but to a broker (and a usually the customer) maintenance is servicing, tyres etc, hence their quote saying 'maintenance - NO'.
Also, the VAT on the vehicle will have to have been paid upfront (if it is an LCV) plus any initial payment.
When you see the whole contract it should all be a bit clearer to allocate.
Definitely a 'purchase' rather than an operating lease.
Thanks Mike - thought there were missing bits to that document pack -was initially dreading opening the four pages Rachel attached as I was expecting all of that to be small print and I hate small print!
Be good to hear more once Rachel gets the full pack.
Loving the avatar pic, such gorgeous penguins.
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Thanks in advance
as usual really appreciated
