Option to buy

The taxpayer company entered into a motor vehicle finance agreements with each customer who gained use of a car in return for monthly payments and could choose to buy the vehicle at the end of the arrangement.

HMRC said the agreement constituted a supply of goods and raised VAT assessments on the basis the tax was chargeable on the full cost of the car at the time the agreement was made.

The taxpayer argued that the arrangement was a supply of services and VAT was chargeable on each monthly payment.

The First-tier Tribunal (FTT) dismissed the taxpayer’s appeal.

The matter escalated to the Upper Tribunal which said the FTT made an error of law in its interpretation of article 14(2)(b) of EU Directive 2006/112/EC (supply of goods). For a contract to come within that provision the normal outcome had to be for the customer to acquire the...