Following the temporary VAT reduction at the end of last year,
the rate is due to go back up from 15 to 17.5 percent on 1 January
2010.
There is concern as to whether customers ordering new cars
towards the end of this year, ahead of the increase, will be able
to beat the VAT rise if they take point-of-sale finance.
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Where the car may not be available for delivery until after 1
January, a cash purchase customer will be able to pay VAT at the 15
percent rate by paying for the car in advance.
However, it may not be possible for a customer requiring hire
purchase type finance to obtain the same advantage in similar
circumstances by advancing the deposit payment.
For most transactions, including cash sales of vehicles or other
goods, the relevant law on the “tax point” (i.e. the relevant date
of a transaction for VAT purposes) is contained in Section 6 (4)
VAT Act 1994.
This provides that the critical date can be the payment date, if
that is earlier than the date of the relevant supply or of the
invoice.
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By GlobalDataWith a cash purchase, it will therefore be relatively easy for
dealers to agree arrangements with customers to beat the VAT
increase on a pre-ordered car. In the case of HP buyers, however,
this may not be possible.
Invigors partner George Tonks explained: “In VAT law, HP sales
are treated as ‘deemed supplies of goods’. They are subject to
special rules under Schedule 4 (2) of the 1994 Act, where the
critical date is the point where the customer takes
possession.”
Under HP the dealer will invoice the finance company for the
VAT-inclusive sale price, which will then be invoiced (at the same
ex-VAT price) by the finance company to the customer through the
finance agreement.
“Where a car is ordered in December this year for delivery after
the end of the year, it would appear that the 17.5 per cent rate
would have to be charged to the customer as the law stands, because
of the wording within Schedule 4,” said Tonks.
“Yet any customers who were able to obtain unsecured loans in
December, instead of using HP, would pay only 15 per cent VAT on
the same order.”
The Finance & Leasing Association is currently discussing
this problem with HM Revenue & Customs.
It remains to be seen whether the authorities will offer a
solution through either transitional regulations or an
extra-statutory concession.
