They can only give you a VAT invoice for the asset itself, in which case you`re fine. On the other hand, a hire-purchase agreement would be a contract for the supply of goods in which the exercise of the call option would be the only economically reasonable choice. B for example because the sum of the monthly payments already paid corresponds to the total cost of purchasing the goods on the financing. In such cases, VAT had to be paid at the end of the term, which was deducted from the total cost of supply. In the case of a supply of goods (HP), VAT is refundable from the outset and the VAT invoice/financing contract must indicate VAT as a “lump sum” paid in advance. The monthly payment of the financing is then made without VAT. So, a cash flow advantage if you have money in your hand today. The tax point for a separate loan is the date of interest payment. If the payments contain a component attributable to the loan fee, it means that a tax point is created on each payment receipt. It is recognized that some providers may have difficulty isolating loan fees if the agreement provides for a fixed interest rate. In these circumstances, an accommodation tax point may be appropriate (see VATTOS6300). This method calculates VAT correctly when you charge VAT.
HMRC also says that if you buy an asset on hire-purchase, even if you usually spell cash for VAT, you should consider VAT on an invoice basis when “buying or selling goods with lease purchase, hire-purchase, conditional sale or sale on credit”. The finance company argued that its “agility agreement” was a service agreement (similar to a lease) because it did not necessarily provide for a transfer of ownership and about half of its tenants chose not to make the lump sum payment. According to this analysis, VAT should only be due on monthly payments. I bought a hire-purchase computer that cost me £1,000 + VAT, so I entered the computer as an invoice using the Computer Hardware Purchase category (preferably with a copy of the hire-purchase agreement attached). I would then set up an invoice payment from the hire purchase bank account for that computer and make the payment entirely with a manual bank entry dated the same day as the invoice. For those who want to understand the “why” in life, these are definitions around the supply of goods, and the key to everything is Section 1(2)(b) of Schedule 4 of the VAT Act 1994, which states: “When ownership of the goods is transferred. under agreements that expressly provide that ownership will also occur at some point in the future. then it is. a supply of goods`.
Alternatively, a deposit may be collected from the supplier as part of the financing contract procedure. It is initially received by the supplier as a representative of the finance company, but is then immediately “received” by the supplier as partial payment for delivery to the finance company. Unless this is preceded by a basic tax point or the issuance of a VAT DE invoice, a payment tax point has been created for the supplier and the financial company. You will see from these examples that the effect of an advance payment is determined by the circumstances in which it was received. In some cases, the financing contract document also serves as a VAT invoice when it is issued to the customer and the normal rules for the delivery time apply. A VAT invoice issued to the customer, whether it is the contract or a traditional VAT invoice, creates the tax point for the delivery where it is issued in advance or within 14 days of the basic tax point. Sometimes you don`t buy an asset directly, but you buy it over time on a hire-purchase or hire-purchase agreement. So you can take this into account in FreeAgent. According to the CJEU`s decision in Mercedes Benz Financial Services (MBFS) case C-164/16 (see VATSC10172), certain contracts that can be classified as hire-purchase agreements are treated for VAT purposes as a single lease and service (and not as a supply of goods and as a separate supply of credit). This is a personal purchase agreement (PCP) or similar agreements where the contract provides for substantial optional payment.
These optional payments can be set at different levels: in HMRC v. Mercedes-Benz Financial Services UK (Case C-164/16), the ECJ was asked to give a preliminary ruling on the classification of an agreement as `agility` providing for a large lump sum payment at the end of the term instead of a modest option fee. Under the finance company`s ordinary hire-purchase agreement, the price of the vehicle (including financing) was represented by the sum of the monthly payments, while under their “agility” agreement, 40% of this price was reflected in the lump sum payment. The lump sum payment represented the residual value of the vehicle at the end of the term. The important point is that the HP agreement applies to a delivery of goods and the PCP is defined as a service, because in reality almost no one ever pays the last payment to own the vehicle directly. Goods delivered as part of a phased purchase or under credit or conditional purchase agreements are generally treated as a full sale in which the property passes from the outset. .