Commentary

V7.415 Transfer of ownership—HP or lease?

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.415 Transfer of ownership—HP or lease?

Part V7 Tax planning | Commentary

V7.415 Transfer of ownership—HP or lease?

A supply of 'goods' applies when a transaction involves:

  1.  

    •     any transfer of the whole property in goods

  2.  

    •     the transfer of possession of goods

A common situation encountered by practitioners concerns the VAT treatment of hire purchase (HP) and leasing agreements.

The key point with an HP agreement is that the intention of the agreement is that ownership of the goods will pass to the hirer at some point in the future, usually when the final payment has been made. The transaction therefore relates to a supply of goods.

The first instalment paid to the HP company usually includes a deposit on the asset and full payment of the VAT on the value of the goods. The hirer can reclaim input tax (subject to normal rules), even though he is paying for the goods over a longer period of time.

Contrast the above situation with the common lease hire arrangement for a

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