.png)
.png)
Suppliers of finance leases need not take action as a result of the European court of justice’s decision in EON Aset Menidjmunt (C-118/11), say HMRC.
The same applies to taxpayers who receive such leases in relation to business cars and block some of the input tax incurred from deduction.
Under UK VAT law, hire purchase agreements are considered to be supplies of goods because they envisage that title to the goods will pass at the end of the hire term. Finance lease agreements do not provide for title to pass and are therefore treated as supplies of services.
Comments made by the European court in the Eon decision suggest that because the risks and rewards of ownership largely pass to the hirer in finance lease agreements, and because this is recognised in international accounting standards, supplies under such agreements may be those of goods rather than services.
The Revenue is considering representations from industry representatives and has neither decided whether or not the latest legal decision means finance lease supplies are indeed those of goods, nor what features are decisive in determining whether a supply is of goods rather than of services.
If there is a change of policy, HMRC will apply them from a future date. No retrospective accounting adjustments will be required.
The EON decision has also raised questions about the input tax block. The Revenue confirms that finance lease cars will continue to have a 50% input tax block applied to them whether or not the eventual VAT treatment of finance lease supplies is as goods.
Where taxpayers are supplied cars for use in their business, the input tax incurred is subject to a block on deduction unless the vehicles are stock in trade, central to the business or not made available for private use.
Input tax is usually wholly blocked, but the block applies at 50% of the tax incurred, rather than 100%, where the supply received is a ‘letting on hire’.
Whether or not finance lease supplies are eventually concluded to be supplies of goods, it will not affect the fact they are lettings on hire. The result is that no change to input tax blocked on finance lease supplies can be needed, say HMRC in Revenue & Customs Brief 37/12.
