RCB/1/19 Change to the VAT treatment of personal contract purchases
Revenue & Customs Brief, Issue 1. 27 February 2019
1 Purpose of this brief
To advise businesses how to treat personal contract purchases (PCP) and similar contracts following the European Court of Justice (CJEU) decision in Mercedes Benz Financial Services (MBFS). Previously HMRC regarded supplies made under such contracts as supplies of goods and a separate supply of credit. Following the MBFS decision we now consider that some of these contracts are a single supply of taxable leasing services.
This brief explains the circumstances where these contracts must be treated as a supply of leasing services, the date from when the change in treatment must be applied, and how to correct past periods where necessary.
2 Who should read this brief
You should read this brief if you make supplies using PCP or similar contracts. By similar contracts we mean contracts that provide for the customer to pay a series of lease payments and then make a choice whether to pay a substantive payment to acquire the asset, or to return the asset at the end of a period of hire without making the substantive payment.
MBFS and HMRC litigated about the correct VAT treatment of MBFS's PCP finance scheme called 'Agility'. The case proceeded to the Court of Appeal (CoA) which made a reference to the CJEU to determine how the phrase “normal course of events” in Article 14(2) of the Principal VAT Directive should be interpreted.
In October 2017 the CJEU gave its ruling