Lease Types
Operating Lease
Supply of services — VAT on each rental payment. Standard-rated 10%. Tax point = each payment date. Lessor claims input on asset purchase. Lessee claims input on rental payments. Short-term vehicle hire — standard-rated.
Finance Lease
Supply of goods — VAT on full value at inception. Standard-rated 10%. Tax point = when goods made available. Interest element — may be exempt financial service. Capital goods scheme applies to lessee. Lessee recovers VAT on full purchase price upfront.
Hire Purchase
Supply of goods — treated like finance lease. VAT on full price upfront. Option to purchase at end = still goods from start. Buyer recovers input VAT at start. Monthly payments include interest (potentially exempt). Default — complex VAT credit note issues.
🔄 Sale & Leaseback
Sale = supply of goods (VAT on sale price). Leaseback = operating or finance lease treatment. Two separate supplies. Must account for VAT on both legs. Common for property and equipment financing.