Mercedes Benz Financial Services Ltd v HMRC

In Mercedes Benz Financial Services Ltd v HMRC (No. 2) (TC02778 – 18 July) a company (M) sold vehicles under a ‘contract purchase agreement’ which gave customers the option of purchasing or returning the vehicle at the end of the agreement. In accounting for VAT M treated the agreement as a rental agreement with an option to purchase so that the payments under the agreement were consideration for supplies of services and VAT was chargeable at the time each payment was made. HMRC issued assessments on the basis that M was making supplies of goods so that VAT was chargeable on the full consideration at the beginning of the agreement. The FTT dismissed M’s appeals holding that the agreements fell within article 14(2)(b) of Directive 2006/112/EC. Judge Tildesley held that each agreement was ‘a contract for the sale of goods on deferred terms which...