Where a enterprise concludes a financial lease for an asset, it is vital from an accounting point of view to record the asset in the books of account with each other with the corresponding liability relating thereto. Consequently, the lessee needs to lessen the deduction claimed on the rental installments with the VAT portion that relates to it. Because input tax is claimable as soon as-off at the commencement of a finance lease, it requirements to be determined how significantly of the total VAT paid in terms of the agreement relates to the rental payments in fact incurred in the course of the assessment period.
The TOFA rules are a new set of tax rules the broad intent of which is to address tax non-neutralities and market place distortions brought on by the ad hoc treatment of the taxation of monetary arrangements more than the years and, also, from rapidly evolving structured financial product markets.
Taxpayers that offer finance leasing solutions of movable assets and transfer their lease-related receivables to economic institutions (such as banks) under a factoring arrangement, are nonetheless essential to problem VAT invoices to the lessee and to report the relevant amount of taxable earnings for VAT purposes.
It argues that full deductibility of rentals to the lessee below a finance lease, even if it is regarded as payment for the expense of the asset or repayment of a loan, is neutral to the Government, as the rentals will be completely assessable to the lessor.
Your only argument with me, that I can see, you offhandedly dismissed by suggesting an equal likelihood that the lessor was rather a moron happy to lease a £27k car to an individual for a total of £23k spread over a lease term (NPV even significantly less than £23k) then wander of with a peppercorn rent.