Notwithstanding the fact that the PCP REVENUE Guidelines do not take into account the availability of bad debts, they confirm that „revenue is prepared to accept that a PCP may be treated as a delivery of goods, in the same way as a standard hire-purchase agreement, where, at the beginning of the agreement, the only economically rational choice for the customer is to purchase the vehicle at the end of the contract“ vii. Therefore, on a comparable basis, all consequences and facilities that apply to goods supplied under HP agreements must also apply to goods delivered under PCP contracts. Goods delivered under hire-purchase or under credit or conditional purchase agreements are generally treated as a direct sale whose ownership passes from the outset. This means that the delivery time is linked to the basic tax point, unless the supplier issues an invoice with VAT indicated. Financial companies that supply cars in PCP are entitled to full deductibility with regard to their car purchases. If the assessment of the terms of the CFP is based on the assumption that the contract constitutes a supply of goods, the financing by exempt credit affects the ability of the financial institution to deduct the VAT incurred from the overheads. As with HP agreements, the method of allocating VAT to these costs is agreed with Revenueiv. The GA believes that each HP should instead be treated as an indivisible (and taxable) supply of the underlying assets (here cars). In other words, the UK`s treatment of HP contracts is wrong. The financial company argued that its „agility agreement“ was a service agreement (similar to a lease) because it did not necessarily provide for a transfer of ownership and in fact, about half of its tenants chose not to make the lump sum payment.

In this analysis, VAT should only be due on monthly payments. On the other hand, a hire-purchase agreement would be a contract for the supply of goods if the exercise of the call option were the only economically reasonable choice, . B because the sum of the payments already paid corresponded to the total cost of purchasing the goods on the financing. In such cases, VAT was due at the end of the period levied on the total cost of the service. In the case of a rental contract constituting a supply of services, VAT is due on each monthly payment, while in the case of an ordinary hire-purchase agreement, which constitutes a supply of „goods“, VAT is due on the transfer of the goods at the end of the term, the taxable amount being the total price of the supply. In both cases, the VAT obligations derive from Council Directive 2006/112/EC (`the VAT Directive`). The CJEU rejected HMRC`s arguments. In order to be a contract for the supply of goods within the meaning of Article 14, it must be clear from the terms of the contract that `ownership of the goods is acquired automatically by the lessee, if performance of the contract takes place normally, over the entire term` (p.

[34]). This contractually agreed result (the transfer of ownership) is „incompatible with a genuine economic alternative for the tenant“ (in the case of [37]). If, as in the present case, the tenant has a real option not to exercise the purchase option at the end of the term, this is a contract for the provision of services. It follows that VAT is due only on monthly payments. VWFS, a financial house, provided loans to customers who wanted to buy a vehicle. This worked by buying the car from the dealer and at the same time providing the customer with financing for the car and making all its profits from the exempt loan provision. The question was how much VAT could be recovered from overheads. Financial institutions involved in hire-purchase transactions are responsible persons with regard to the provision of: The Opinion of the Advocate General (AG) of the CJEU in the Volkswagen Financial Services case (Case C-153/17) has been published. In the United Kingdom, the exemption from VAT on financial services includes the granting of credit under a hire purchase agreement (HP). Car dealers typically divide HP contracts into two deliveries.

It is, on the one hand, a taxable supply of motor vehicles and, on the other hand, a supply of a tax-exempt credit. This leads to partial coverage of VAT costs as overheads of the business. HMRC had argued that input VAT on overheads should not be recoverable at all, as none of the overheads were related to the supply of cars and the exemption of loans. The supply of a car under a hire purchase agreement (HP) or a personal contract plan (PCP) is a supply of goods for VAT purposes. As soon as the customer commits, a delivery by the dealer to a financial house (usually a credit institution or a financial company within the manufacturer`s group of companies) and a subsequent delivery from the customer by the financial house take place. These two deliveries are made simultaneously. With both forms of financing, VAT on the total value of the car is paid by the financial house in advance to income when the customer takes possession of the car. The Irish Tax Guidelines on VAT and Hire-Purchase Agreements emphasise that financial institutions are entitled to pro-rata relief from bad debts related to hire-purchase transactions in the event of default with regard to the VAT element of unpaid payments. If a hire purchase agreement is terminated prematurely and the vehicle is returned to the property of the financial home, a bad debt may be claimed in respect of the VAT element of unpaid payments (subject to the application of formulas to remove the value of interest from the amounts paid so far as well as unpaid amounts to determine the value of VAT on bad debts). While PCP agreements are a bit more complicated than HP agreements, the revenue guidelines for PCPs are not as extensive as those for HP. Prior to the COVID crisis, comments from the automotive industry revealed that less than 2% of PCP customers exercised option (i), which could indicate that the issue of bad debt relief has not yet been raised in a volume that would require revenues to consult on these issues at the insistence of the industry and update their PCP advice accordingly. Due to the COVID-19 crisis, the global automotive industry is facing an unprecedented challenge.

In an effort to manage household budget reduction, many people struggle to make their monthly car payments under their HP or PCP contracts. According to central bank data, the share of total car financing in consumer loans in August 2019 was 44%, well above the 8% recorded in June 2012. Installment purchase financing amounted to approximately $3.1 billion. € of the largest amount of personal funding by value, of which €1.2 billion is attributable to PCP funding. For other car financing of €0.09 billion, the PCP accounted for 30% of all car financing. The judgment of the Court of Justice of the European Union (CJEU) in the Mercedes Benz case (C-164/16) clarified the position on the VAT treatment of PCPs. Revenue has developed guidelines for the classification of CFP from a VAT perspective. According to the CJEU`s decision in Mercedes Benz Financial Services (MBFS) case C-164/16 (see VATSC10172), certain contracts that can be described as hire-purchase agreements are treated as a lease and a single service for VAT purposes (and not as a supply of goods and a separate supply of credit).

These are personal contract purchases (PCP) or similar agreements where the contract provides for substantial optional payment. These optional payments can be set at different levels: once the 36 monthly payments have been settled, the balance of the phase 1 purchase invoice should be zero. .