Leasing based on VAT and PIT - how to correctly enter the accounts?
Leasing is a fairly specific type of commercial agreement, thanks to which an entrepreneur can use equipment in his company that has not been purchased directly by the taxpayer. It is a good way to obtain the necessary assets, the value of which exceeds the one-time capabilities of the owner of the company. However, when concluding a leasing contract, it is worth remembering that it generates income and costs, and thus - has an impact on income tax and VAT. Read the article and find out how to correctly book the leasing!
Operating lease is described in Art. 23b paragraph. 1 of the Personal Income Tax Act. In this type of contract, the equipment to which it relates remains in the lessor's fixed assets register. This means that the lessee cannot recognize depreciation charges as tax deductible costs. On the other hand, what can be booked as a company expense is the entire leasing installment, plus the necessary handling fees and commissions. Also, all costs incurred for the daily operation of a fixed asset - such as fuel for a car - can be included in company expenses, without the need to limit them by mileage.
The lessor - as mentioned before - by concluding the operating lease agreement, undertakes to make depreciation write-offs of the fixed asset. On the other hand, it includes the entire lease payment received from the lessee as its income.
The operating lease agreement provides for the option of purchasing a fixed asset by the lessee.
Leasing is also subject to value added tax. The operating lease agreement assumes that this tax will be charged separately for each installment paid. It is therefore a great advantage for entrepreneurs who want to spread costs over time.
Mrs. Anna, who runs a grocery store, concluded an operating lease agreement for the purchase of a truck. Due to the fact that the purchased car will be used only in business, can it constitute a fixed asset of the company that will be depreciated over time? How should VAT invoices be settled for monthly leasing installments?
A car whose purchase is financed with operating lease does not constitute a fixed asset on the part of the user. The fact that the vehicle will only be used for business purposes is irrelevant. Therefore, the company costs on the part of Ms Anna will not be depreciation write-offs, but an invoice for the initial payment and subsequent leasing installments.
Financial leasing is the second form of contract that the lessor and the lessee can choose. It is quite different from the previously described operating lease. The provisions relating to it are contained in Art. 23f paragraph. 1 of the Personal Income Tax Act.
Upon the conclusion of the contract, the equipment to which it relates is entered into the register of the lessee's fixed assets. Consequently, it is this party that makes depreciation write-offs and classifies them as tax deductible costs.
In financial leasing, the user cannot qualify the entire leasing installment he pays for the equipment as corporate expenses. In this situation, the only cost - apart from depreciation write-offs - is interest on the basic part of the installment. They are calculated as the difference between the repayment amount and the initial value of the asset. At the same time, only such interest increases the lessor's income.
The lease agreement provides that with the payment of the last installment, the lessee becomes the owner of the leased asset. Therefore, there is no need to establish additional redemption rules in this situation.
The VAT tax on financial leasing is not broken down into installments. The entire amount should be paid together with the payment of the first leasing installment. Therefore, when deciding on this type of contract, you should take into account the need to pay a large amount of money at one time.
Mr. Jan, who runs the XYZ company, purchased a computer set, the net price of which was PLN 11,000. The purchase was financed with a financial lease. Due to the fact that the equipment is complete and fit for use and will be used in the company for more than 1 year, can it be included in the company's fixed assets? How should the costs of monthly leasing installments be settled?
Due to the fact that the purchase of a computer set was financed with a financial lease, it should be entered in the register of fixed assets on the side of the user. As a result, the computer set will be subject to depreciation. However, in the case of leasing installments, Mr. Jan may only include the paid interest part of a particular installment as tax costs. It is also worth remembering that when concluding a financial leasing contract, the entire amount of VAT on the transaction is payable together with the payment of the first leasing installment. During the suspension of operations, leasing fees may be recognized as tax deductible costs, provided that the leasing contract was concluded before the suspension of the company.
Initial lease payment
The method of booking the initial leasing fee has always aroused a dispute between tax authorities and taxpayers. On the one hand, indirect costs - i.e. those not directly related to a specific income - can be booked once, on the date they are incurred. However, according to Art. 22 sec. 5c of the Personal Income Tax Act, if such expenditure relates to more than one accounting period and it is impossible to determine to what part they relate to a given tax year, they should be divided and assigned proportionally to individual periods.
What aroused the greatest controversy in this regard was the method of relating the initial payment to leasing. In this regard, taxpayers took the position that such a fee should be booked once, as it conditions the possibility of concluding a leasing contract and does not relate directly to individual installments. On the other hand, the tax authorities assumed that this is an expense closely related to the entire leasing contract, therefore it should be settled proportionally with individual installments.
Importantly, the administrative courts addressed by entrepreneurs are exceptionally unanimous in their judgments. They agree with the position of taxpayers and the possibility of posting the initial lease payment once, with the date of its actual payment.
As a result of the unified position of the courts, the Ministry of Finance issued a letter (Biuletyn Skarbowy No. 1 of 2012, No. posting the initial payment:
The DD Department informs, in favor of the jurisprudence presented by administrative courts, that the initial leasing fee should be included in tax costs once when incurred, and not proportionally to the duration of the leasing contract. A characteristic feature of these judgments is the recognition that the initial leasing fee is a non-returnable spontaneous fee, not assigned to individual leasing installments, while its incurring is a necessary condition for the implementation of the leasing contract. This fee is a one-off expenditure related to the conclusion of the leasing contract, and, consequently, the release of the subject of the lease itself.
The correctness of the one-off recognition of the initial fee in tax costs was also confirmed by the Director of the Tax Chamber in Bydgoszcz in the individual tax ruling issued on March 8, 2016, ref. No. ITPB1 / 4511-1158 / 15 / AK, in which we read, that:
(...) the initial leasing fee determines the conclusion of the contract, i.e. it should be associated not so much with the entire contract understood in terms of time, but with the moment of its conclusion. It concerns not so much the duration of leasing services, but the right to use it in general. Thus, there is a fee for the entire duration of the lease. Hence, this fee is a one-off expenditure related to the conclusion of the leasing contract. Therefore, there is no obligation to settle it in proportion to the duration of the contract. Thus, the initial fee should be counted as tax deductible costs on a one-off basis on the date it is incurred. (...) Since 2013, it is possible to change the parties to the lease - if other terms of the contract remain unchanged, such an event is treated as a continuation of the contract. In the event of a change in additional conditions - apart from the parties - such a fact is considered to be the conclusion of a new lease agreement.
Operating leasing - recognition in the wFirma.pl system
As a rule, assets financed with operating lease cannot be entered into the register of fixed assets. The wFirma.pl system distinguishes between two categories of the leased asset:
- passenger car and truck,
- other assets.
From January 1, 2019, the method of settling costs related to passenger cars used in the company has changed. More on this subject in the article: Change in the method of accounting for passenger cars in the company from 2019
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Operating lease and a passenger car and a truck
To book an invoice from the lessor for the initial payment and subsequent leasing installments, first add the vehicle to the system via the tab: RECORDS »VEHICLES» ADD VEHICLE. After filling in the required fields, select the option Operating lease and rental as the Ownership form and specify the Use method as only in business or in business and private, because on this basis the right to deduct VAT on car-related expenses (50% or 100%) will be established. The booked expenses related to the vehicle added in this way are entered by the system in the sales VAT register and in the KPiR in accordance with the applicable limits.
The invoice for the initial payment and leasing installments should be entered into the system via the tab: EXPENSES »ACCOUNTING» ADD »VAT INVOICES» LEASING OR RENTAL (for a truck) / LEASING OR RENTING A CAR.
The posted expenditure will be included in the VAT Purchase Register (in the case of active VAT payers) in accordance with the right to deduct VAT on expenses and in column 13 of the KPiR - Other expenses. Expenses related to the purchase of fuel or the current use of a passenger car or truck under operating lease should be booked in the system via the tab: EXPENDITURE »ACCOUNTING» ADD »VAT INVOICE» PURCHASE OF FUEL FOR THE VEHICLE / OTHER EXPENSES RELATED TO THE CURRENT USE OF THE VEHICLE.
Operating lease and other assets
The invoice for the initial payment and subsequent lease installments relating to the financing of the purchase of other assets with operating lease should be posted in the system through the tab: EXPENDITURE »ACCOUNTING» ADD »VAT INVOICE» OTHER EXPENDITURE RELATED TO BUSINESS ACTIVITY.
The posted expenditure will be included in the VAT Purchase Register (in the case of active VAT payers) and in the column 13 of the KPiR - Other expenses without additional limits for VAT deduction or cost limit.