Q- My client is a VAT registered builder and purchased a van for his business on hire purchase (HP) two years ago – because it was anticipated that title would pass in the future once all the payments had been made, it was treated as a supply of goods, and my client reclaimed all of the input tax up front. He is now struggling to meet the monthly repayments and the finance company is in the process of repossessing the vehicle. Does my client have to account for any VAT when the vehicle is repossessed, or are there any adjustments to the input tax that was claimed?
A- Firstly, it is important to identify the type of credit agreement that is in place. In your client’s circumstances, under an HP agreement, where it is anticipated that title will pass in the future, this is treated as a supply of goods at the outset, thus meaning VAT is charged and recoverable at the start of the agreement.
However, lease agreements where title will not pass, or agreements where there is a large balloon payment at the end that make it highly unlikely that title will pass, are classed as services, and VAT is charged on the monthly payments, not at the outset. It is often worthwhile checking how the supplier/finance company is treating the supply. Read More