HMRC has revised its view of supplies involving personal contract purchases, after the Court of Justice of the EU decision in Mercedes-Benz Financial Services UK (C-164/16). These contracts may now be treated as single supplies of taxable leasing services, depending on 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.
RCB 1/2019: Change to VAT treatment of personal contract purchases: tinyurl.com/RCB12019
