Purchasing Asset with Finance - how to record?

Hello :slight_smile:

I am registered for VAT and completing my first year’s accounts.
In December 2015 I purchased some capital equipment (I was charged VAT) and then I used a loan company to pay for it monthly (who also charge me VAT).

So, I originally raised an invoice for the sale and paid it by opening a Loan Account, and then complete my bank account monthly payments by tagging them each time. But now, I realise that the VAT for the loan element isn’t being accounted for anywhere. I am paying £213.30 plus VAT £42.66 per month. Please can anyone help to explain the best way to record this.

The original invoice for the capital equipment was £5575 + VAT. The loan is a total of £7521.25 + VAT over 36 months. So I also need to find a way to record the amount I owe by £831.25. Not sure the best way round this all. Perhaps I need to pay for an accountant? Hope not! Appreciate any advice.

Many thanks.


Is this a loan or a lease? The fact that you’re being charged the full 20% VAT on every monthly payment makes it sound more like a lease to me - the asset is owned by the leasing company and you lease it back off them for a monthly fee. If it were a loan (you own the asset, but it was bought with borrowed money) then they would be charging you interest on the borrowing but not VAT.

If this is right then I believe you can claim the VAT on the monthly payments but not on the capital invoice, and in fact the asset shouldn’t show on your balance sheet at all (because you don’t own it). All you need is a recurring purchase for the monthly amount.

But I am not an accountant, and I would strongly recommend showing the paperwork to a real one to be sure.

1 Like

Thanks Ian. Yes, I have checked and it is a lease arrangement. Appreciate your advice. I’ll see if I can get some more advice. Thanks again.