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Readers' forum: Car trouble

09 April 2019
Issue: 4691 / Categories: Forum & Feedback
VAT treatment of a vehicle purchase agreement 

A client has acquired a car under a hire purchase or personal contract purchase (PCP) contract with an optional final ‘balloon’ settlement payment included. He states that when taking out the agreement he was assured that VAT is included in the monthly instalments but he cannot obtain any documentation regarding this. It appears that under recent HMRC guidance the supplier makes the decision as to whether the agreement is a purchase agreement or a leasing agreement.

Can readers clarify the following points?

  • If instalments do include VAT should the finance company be issuing monthly VAT invoices (presumably only 50% VAT is reclaimable) and also a VAT invoice for the deposit of £5 000 paid?
  • If VAT invoices cannot be obtained should our client assume this is not a leasing agreement or can they reclaim VAT on the basis of advice given when taking out the agreement?
  • Does the...

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