Commentary

V6.289 VAT recovery and other practical points in the leasing and hire purchase sector

Part V6 Business by business

V6.289 VAT recovery and other practical points in the leasing and hire purchase sector

V6.289 VAT recovery and other practical points in the leasing and hire purchase sector

VAT recovery in the leasing and hire purchase sector

Lessors and input tax recovery

A lessor who enters into hire-purchase transactions with a separate exempt finance facility will make a mixture of taxable and exempt supplies (for the liability of supplies see 'VAT liability of leases and hire-purchase agreements' at V6.288). A key VAT issue for the sector will therefore be partial exemption. Partial exemption is covered at V3.460–V3.470. Many in the sector will wish to agree bespoke special recovery methods with HMRC (see V3.462 for details of special methods).

There has been historic disagreement between HMRC and the sector as to fair ways to apportion VAT on overheads related to hire-purchase supplies (see 'Recovery of overheads in relation to hire purchase supplies' at V3.464A. Note, in particular, the CJEU's decision in Volkswagen Financial Services (VWFS) (C-153/17) and HMRC's subsequent guidance on a recommended method for calculating recoverable VAT (since incorporated into PE73200).

Partial exemption and the reverse charge

When partly exempt businesses in the sector buy in services from abroad they will normally be required to account for VAT via the reverse charge mechanism (see at V3.231). It is particularly important that partly exempt traders do not neglect this obligation as they may not be able to recover all of the VAT accounted for under the reverse charge.

Capital goods scheme

Businesses in the leasing and hire-purchase sector which acquire significant capital assets (such as land, buildings computers, ships and aircraft)

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