{"id":3491,"date":"2020-03-04T17:33:58","date_gmt":"2020-03-04T17:33:58","guid":{"rendered":"http:\/\/www.bainesjewitt.co.uk\/blog\/?p=3491"},"modified":"2020-03-04T17:34:00","modified_gmt":"2020-03-04T17:34:00","slug":"the-vat-treatment-of-pcp-agreements-for-commercial-vehicles","status":"publish","type":"post","link":"https:\/\/www.bainesjewitt.co.uk\/blog\/the-vat-treatment-of-pcp-agreements-for-commercial-vehicles\/","title":{"rendered":"The VAT treatment of PCP agreements for commercial vehicles"},"content":{"rendered":"

When considering the purchase a commercial vehicle, there are many decisions to make, including whether an HP agreement or a personal contract purchase (PCP) agreement is more suitable, but what are the VAT implications of a PCP agreement?<\/p>\n

With an increase in the different types of financing available for the purchase of vehicles, more people are now questioning which option is the best for their circumstances.<\/p>\n

Defining the type of agreement<\/strong><\/p>\n

HM Revenue & Customs (HMRC) differentiates between the supply of goods, such as a hire purchase agreement, and a supply of services. Essentially, a hire purchase agreement considers that the title will pass at the end of the agreement, but a lease agreement, such as those with large balloon payments, may end with the lessee leaving the agreement.<\/p>\n

The significance of the difference between a supply of goods and a supply of service is the timing of VAT recovery.<\/p>\n

The VAT treatment of agreements<\/strong><\/p>\n

In the case of a supply of goods, the VAT is chargeable and as a result, recoverable, from the beginning, with the VAT finance agreement showing the VAT as a lump sum that is payable upfront, and any monthly finance payment should, therefore, be net of any VAT.<\/p>\n

However, in a supply of leasing services, the VAT is chargeable and recoverable on each payment, and this means that a VAT schedule should be provided by the finance company in which the payments are detailed.<\/p>\n

But how do the rules apply for PCP agreements? <\/strong><\/p>\n

Following a court case involving Mercedes Benz Financial Services, the HMRC guidance was updated and a new brief issues.<\/p>\n

As a result, the VAT treatment of PCP contracts will be dependent on the level at which the final optional payment is set:<\/p>\n