The importance of this distinction between the delivery of goods and the provision of services is the impact on the timing of VAT collection. With regard to deliveries of goods, VAT is taxable and therefore recoverable, and VAT/financing agreement must be declared “to be paid in advance” and the monthly financial payment must be deducted from VAT. Conversely, with regard to the provision of rental services, VAT is taxable for each periodic and therefore recoverable payment, and the financial company should submit a VAT plan detailing these payments. “If the possession of goods is transferred… according to agreements expressly anticipating that the property will continue to be in the future (determined or identifiable by the agreements, but in all cases at the latest when the goods are fully paid)… so, it`s… delivery of goods.” A car buyer agrees to pay a minimum deposit in advance (usually between 0% and 30% of the value of the vehicle), the buyer then agrees with the dealer the amount of monthly payments, usually for 36 to 48 months (in the United States some have been increased to 84 months). At the end of the agreement, the buyer will be informed of the future guaranteed value (GFV) of the vehicle (see below). My client wants to buy a commercial vehicle and the dealer offers either an HP agreement or a PCP (Personal Contract Purchase) contract.
As far as I know, it may have different effects on the taxation of VAT depending on the nature of the agreement. Can you fix this? This is a mistake, because delivery is one of the services. However, if VAT has been fully accounted for in advance of the goods delivered under these contracts, companies do not need to review their VAT accounting. Delivery of a car under a lease agreement (HP) or a personal contract plan (PCP) is a delivery of goods for VAT purposes. Once the customer commits, there is a delivery from the car dealership to a financial institution (usually a credit institution or financial company within the manufacturer`s group of companies) and a subsequent delivery from the financial house to the customer. Both stocks are being done simultaneously. For both forms of financing, VAT on the full value of the car is paid in advance by the financial house to income when the customer takes possession of the car. Under HP, after payment of the last installment (usually the 36th), the ownership of the car is automatically transferred from the financial house to the customer. The monthly payment consists of two amounts: a capital payment representing the value of the car, plus financing by borrowing. The first is a non-event for VAT (since VAT has already been accounted for in advance), while the second is exempt from VAT (interest).
Financial institutions that supply cars with HP are entitled to a total deductibility for the purchase of cars. The European Court of Justice has considered the impact of exempt loan financing on the financial company`s ability to deduct VAT on overheads related to its HP business, with the precise method of allocating VAT among these costs, which is now at issue with Revenue. The accounting treatment for the purchase of a car via PCP is different from a more traditional rental purchase.