changed under the government’s fiscal plans to relieve the economic
recession. The rate went down from 17.5 to 15 per cent on December
1 2008, and will return to the original rate at the end of 2009.
The main impact on motor finance will be on the rentals in contract
hire and other leasing operations.
Prior to this year, the standard VAT rate had not changed since
1991 and had never been reduced since 1974, so most lessors will
have no recent experience of some of the administrative
difficulties that could arise.
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Lessees who are end-users of business cars can recover only 50
per cent of the VAT on the rentals, even if these businesses are
VAT-registered and have to account for VAT on all their own sales.
They therefore have an interest in paying VAT at the lower rate on
any monthly or quarterly rental where possible.
Invigors partner George Tonks commented: “There are two
alternative ways for lessors to invoice for VAT on lease rentals.
Probably the more commonly used one in contract hire is to issue
annual schedules in advance for the rentals due in the following
year. In this case, under VAT law the ‘tax point’ (i.e. the
relevant date for VAT) will be the due date for payment. So
schedules covering the current period will need to be re-issued
with revised details of the periodic VAT rates to reflect the
reduction from December 1.”
The other alternative is to invoice separately for each rental.
“In this case the tax point is the invoice date. So a rental due in
December could still carry 17.5 per cent VAT if invoiced before
December 1. However, HM Revenue & Customs has allowed a period
of 45 days from the Pre-Budget Report announcement on November 24
to re-issue invoices so that the reduced rate can apply to payments
due from December 1,” said Tonks.
On head leases into contract hire operations, the
lessee/sub-lessor will be able to recover all VAT paid to the head
lessor, so should not be materially affected by the rate change.
However, Tonks added: “In all cases there could be scope for a
lessee to delay payment while the VAT rate is discussed with the
lessor.”
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By GlobalDataAndy Thompson
