HMRC has revised its view of supplies involving personal contract purchases, following the CJEU decision in Mercedes Benz Financial Services [2018] STC 1190.
In Revenue & Customs Brief 1/2019, HMRC says these contracts may now be treated as single supplies of taxable leasing services, depending on the level of the final optional payment. A payment set at or above the anticipated market value of the goods at the end of the contract will indicate leasing, with VAT due on the value of each instalment. A payment below market value is likely to be a supply of goods, with VAT due in full at the outset, and a separate exempt supply of finance.
Businesses must adopt the correct treatment for all new contracts after 1 June 2019. The brief also contains guidance on corrections that may be required to past VAT periods.
HMRC has revised its view of supplies involving personal contract purchases, following the CJEU decision in Mercedes Benz Financial Services [2018] STC 1190.
In Revenue & Customs Brief 1/2019, HMRC says these contracts may now be treated as single supplies of taxable leasing services, depending on the level of the final optional payment. A payment set at or above the anticipated market value of the goods at the end of the contract will indicate leasing, with VAT due on the value of each instalment. A payment below market value is likely to be a supply of goods, with VAT due in full at the outset, and a separate exempt supply of finance.
Businesses must adopt the correct treatment for all new contracts after 1 June 2019. The brief also contains guidance on corrections that may be required to past VAT periods.
