Reconciliation must still pass before results unlock.
1
Agreement Setup
Standard, client, and the headline figures taken from the lender’s agreement
Amount of Credit — take this directly from the lender’s agreement. It is usually labelled “Amount of Credit”, “Balance Financed” or “Amount Financed”. Do not calculate it yourself from the cash price.
Option to Purchase — the final fee payable to take title to the asset. It is capital, not interest: it is added to the final month’s cash flow and repays the remaining liability, so it does not increase the total charge for credit. Many lenders exclude it from their stated Total Amount Payable — the reconciliation in Step 4 handles that.
Enter it exclusive of VAT. Lenders often quote the option fee gross, so a “£100 option fee” may be £83.33 plus VAT. Check which basis the document is on before entering it.
Why VAT is outside the schedule. The schedule models the HP liability, not the bank account. VAT on an HP agreement is charged in full at inception on the cash price and recovered as input tax on that period’s return — it is a movement through the VAT control account, not a cost, and never part of the finance charge. Interest itself is exempt, so it never carries VAT. Putting recoverable VAT into the cash flows would inflate the effective rate against a liability that does not include it, and the schedule would not agree to the HP Liability account in Xero.
The one exception is VAT the lender has financed. Where the lender pays the VAT and adds it to the balance, it sits inside the Amount of Credit and its repayment — usually a lump in month 3 or 4, once the client has reclaimed it — is one of the scheduled payments. It is then genuinely part of the liability and belongs in the IRR. The test is not whether VAT was involved but whether the lender financed it: take the Amount of Credit exactly as stated and enter the payment schedule exactly as written, and the treatment follows automatically.
FRS 102 mode: The calculator derives the implicit interest rate (IRR) using Newton-Raphson and builds the full amortisation schedule using the effective interest method (FRS 102 s20). The documentation fee stays in the payment stream and is absorbed into the effective rate, spreading across the term as finance charge. VAT and advance rental reduce the amount financed; part exchange reduces it as a deposit equivalent. A prepayment in a later month reduces the outstanding balance — the IRR is fixed at inception, but future interest charges fall as the balance drops, shortening the agreement.
2
Payment Schedule
Choose how the lender’s schedule is structured, then enter the payments
Equal instalments — every payment is the same amount, with no gaps. The most common profile. Enter one amount and the term.
Payment groups — the instalment changes during the term, or the first payment differs from the rest. Typical causes: the lender has embedded the documentation fee in Month 1, or the agreement has a stepped or seasonal profile. Enter each block with its commencement date and payment count.
Full schedule — no repeating pattern at all, or you are reconstructing a part-completed agreement. Enter every month individually.
If you are unsure: compare the first payment on the lender’s schedule with the second. If they differ, use payment groups.
All months same amount. Use Payment Groups for agreements with irregular payments, balloons, or different first/last payments.
Enter one row per payment group, matching the lender's Schedule of Payments exactly — including the full Month 1 amount even if it contains a doc fee. Use the agreement start date and the lender's commencement date per group to set the month number automatically.
Enter each month individually. Month number is auto-sequenced from 1. You can paste or type amounts directly.
3
Reference Figures
From the lender’s document — for reconciliation and disclosure only
Where does the documentation fee sit?
Look at the lender’s schedule of payments. This changes the journals, so it has to be answered.
These figures do not affect the calculation. They are recorded for reconciliation and disclosure only. Only the Amount of Credit drives the interest calculation — the lender has already netted the deposit, part exchange and advance rental off in arriving at it, so deducting them again would understate the balance being financed.
Documentation fee — FRS 102. Enter the lender’s payment schedule exactly as written. If the fee appears as a payment — whether as a standalone first payment or embedded in an inflated first instalment — it goes in as a payment. Do not strip it out.
Where the fee is a payment, the opening liability is the Amount of Credit. The effective rate absorbs the fee and releases it across the term through the Interest column of the amortisation schedule. Nothing is expensed on day one and no Day 1 journal is required.
Where every payment is the same figure, the fee was paid at inception and is not in the schedule at all. It is then a transaction cost, so the opening liability is the Amount of Credit less the fee, and the Day 1 tab will tell you to code the fee payment to HP Liability rather than to expense. Either way the fee reaches the P&L through the effective rate, never as a day one cost.
The liability clearing to nil at the end of the term is your check that it is right.
Documentation fee — FRS 105. Enter the lender’s payment schedule exactly as written, the same as FRS 102. The fee is then stripped from the Month 1 cash flow before the rate is solved, so the interest reflects pure finance cost, and it appears as a full cost in Month 1 in its own Fee column on the amortisation schedule.
Month 1’s journal comes straight off that row: Dr HP Finance Charges (interest), Dr HP Finance Charges — doc fee, Cr HP Liability (both combined). That entry is needed because AP posts the whole payment to HP Liability, so the fee has to be moved out of the liability into the P&L.
Where the fee was paid separately at inception it is handled the same way, because AP codes that payment to HP Liability too. It is not stripped from any cash flow and the opening balance is not netted — the Fee column simply puts it back on the liability and expenses it, so the net effect on the balance is nil. The opening liability stays at the Amount of Credit under FRS 105 in every case. No Day 1 entry and no disclosure note.
4
Reconciliation
Check the calculator against the lender’s stated figures before going any further
Green — agrees to the lender’s stated figure exactly. Amber — agrees on an alternative basis. Almost always because the lender excludes the documentation fee, the option to purchase, or both, from their stated Total Amount Payable. The panel names which basis matched. Amber is acceptable — check the named basis matches the agreement in front of you, then continue. Red — does not reconcile on any basis. Results stay locked. Re-check the Amount of Credit and the payment profile first; those two fields cause almost every red.
5
Results
Schedule, journals, year-end summary and save to ClickUp
Annual service or admin fees (commonly £40 a year) are not part of the finance cost. Leave them out of the payment schedule entirely and expense them as incurred — including them inflates the EIR.
Early Settlement
Enter the month number and the settlement figure from the lender's settlement letter. The calculator will derive the carrying value at that date, post the settlement journal, and flag the difference as a finance charge adjustment. Asset disposal is handled separately in Xero Fixed Asset Register.
AP posts all bank payments to the HP Liability account (Dr HP Liability / Cr Bank). The journal below is posted by the accountant each month to release the finance charge to P&L, leaving the HP Liability reduced by capital only.
Day 1 — Xero Setup
No manual journal is required on Day 1. The HP liability is created automatically when the supplier invoice is posted in Xero.
Ledger Reconciliation & Arrears
The amortisation schedule models the agreement as contracted. Where payments have been missed, part paid, bounced or caught up, the real liability diverges from it and the divergence compounds every month. Enter the actual cash movements below and the correct interest, journals and closing balance follow from them.
The effective rate never changes. A missed payment is a breach, not a repricing — the same rate is simply applied to the balance that is genuinely outstanding.
Reconstruct from month-end ledger balances
Paste the HP Liability closing balance for each month from the agreement start, one per line, oldest first. Blank lines are skipped and tracking stops at the last figure entered. The cash movement for each month is derived, so nothing needs to be keyed twice. Enter balances after the interest journal for that month has been posted — that is the balance as it stands on the ledger at the month end.
Ledger tracking is not active on this agreement. All journals are being taken from the contractual schedule. If any payment has been missed, part paid or returned, start tracking above.
Month
Date
Opening
Contractual
Cash Movement
Lender Charge
Interest
Closing
Classification
OK
Year-End Summary
The client’s accounting year end, not the agreement anniversary. Day and month, e.g. 31 March.
Should match the Year End on the client’s CRM record. Changing it only affects this tab —
it does not alter the schedule or require the steps above to be re-confirmed.
Period
Period Interest
Cumulative Interest
Period Capital
Closing Liability
Current Portion
Non-Current Portion
Early Settlement Journal
Enter agreement details above
The amortisation schedule, journals and year-end summary will appear here once you enter the financed amount and monthly payment.
