Finance Agreement Vat

When exercising option (ii) ownership is seen in the autopass to the customer, exercising option (iii) and largely without the knowledge of the average customer, title is passed fugitively to the customer before going elsewhere, usually back to the original dealer. The car under the existing PCP contract is then treated as “exchanged” for a new CAR financed by PCP, but if the market value of the car has fallen below the GMFV, perhaps due to wear and tear or unforeseen factors such as diesel cars expiring, the customer may have to pay a larger down payment to enter into the new agreement. This article only provides a general overview of some of the effects of defects and repossession of vehicles under HP or PCP agreements. We`d be happy to discuss how this will affect your business in concrete terms. The statements on the BMF circular of 3.12.2019 have just been published. For example, the Institute of German Accountants pointed out that the wording of the no objection rule does not apply to transactions that were treated as services until the publication of the draft. If, according to the most recent opinion, an agreement is to be considered a supply, the VAT information may have to be changed retroactively. Financial companies that supply cars in PCP are entitled to full deductibility with regard to their car purchases. If, on the basis of the terms of the PCP, it is considered that the contract constitutes a supply of goods, the financing by exempt credit affects the ability of the finance house to deduct the VAT incurred on the overheads. As with HP agreements, the method of allocating VAT to these costs is agreed with Revenueiv. “If possession of property is transferred. in the case of agreements that expressly provide that ownership will also occur at some point in the future (determined by the agreements or verifiable from the agreements), but in any case at the latest with full payment of the goods), then it is . a supply of goods`.

Notwithstanding the fact that the Ministry of Finance`s PCP guidelines are silent on the availability of bad debts, they confirm that “revenues are prepared to accept that a PCP can be treated as a delivery of goods, in the same way as a standard hire-purchase agreement, where at the beginning of the contract, 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 exemptions applicable to goods supplied under HP agreements must also apply to goods supplied under PCP contracts. VAT rules distinguish between leasing and conditional hire-purchase/sale. The first is treated as a supply of services and the second as a supply of goods. The main result of this distinction is timing: VAT on an HP contract is payable by the tenant in advance at the cost of the property, while VAT on leasing contracts is payable on each lease payment. The Irish Tax Guidelines on VAT and Hire-Purchase Agreements stipulate that financial institutions are entitled to pro-rata relief from hire-purchase transactions in the event of default in relation 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, relief from the claim may be requested in respect of the VAT portion of the unpaid payments (subject to the application of formulas to deduct the value of interest from the amounts paid so far, as well as unpaid amounts to determine the value of VAT on bad debts). Currently, the income tax classification of a leased asset also determines the VAT treatment of the leasing agreement. Nevertheless, it is important to first determine the supply item before considering the time of delivery.

For example, is the loan financed by the supplier itself? If this is the case, the goods will be delivered directly to the customer. On the other hand, the participation of a third-party finance company could mean that there are two supplies consisting of a delivery to the finance company and by the finance company to the client. However, this should not be assumed. For example, if the financing is done through an unsecured loan, it is unlikely that the goods will be delivered to the finance company granting the loan. Note: This could be the case, for example, if, according to the contract, if the possibility of exercising the option arises, the sum of the contractual payments corresponds to the market value of the goods, including financing costs, and the lessee is not obliged to pay a significant amount as a result of exercising the option. The term “substantial sum” may still need to be clarified. See further guidance on the Department of Revenue`s view on the distinction between lease plans and leases in the context of this case. Please note that the principles set out in the new circular apply to all outstanding cases in accordance with the draft. However, there is no objection to transactions carried out before the date of publication of the BMF Circular if all parties agree on the application of the old version of VAT. In some cases, the financing contract document also serves as a VAT invoice when it is issued to the customer and the normal rules for the delivery time apply. A VAT invoice issued to the customer, whether it is the contract or a traditional VAT invoice, creates the tax point for the delivery where it is issued in advance or within 14 days of the basic tax point.

The decision to determine whether a finance lease for VAT purposes should be regarded as a supply (purchase) or other service (rent) would currently be determined by the income tax criteria applicable to beneficial ownership (so-called leasing regulations). A major revision of the VAT treatment of finance leases is currently expected. In a draft circular of 3.12.2019, the Federal Ministry of Finance (BMF) planned to include new case law of the CJEU in the Ordinance on the Decree on the Application of VAT (VAT AE) and thus deviate from the criteria of income tax. The question of how existing agreements should be dealt with is just as important as dealing with any discrepancies between income tax and VAT that may arise in the future. Option (ii) provides for a final compensation payment (a “lump sum payment”) called the Minimum Guaranteed Term Value (GMFV); the last payment to be paid at the end of the contract if the customer must be the owner of the vehicle. This figure is based on the financial house`s estimate of the future value of the car at the end of the contract, based on a number of variables such as the make and model of the car, the duration of the contract, the expected annual mileage, etc. This is the expected value of the GMFV that keeps monthly payments low (compared to monthly hp amounts), but provides the customer with a significant cash value at the end of the contract if they have to buy the car. Unless they are replaced by other checkpoints that may have occurred in the meantime (e.B. through the supply/delivery of the goods), these adjustments represent additional tax points for the simultaneous payment of the original recipient and the financial company. The supply of a vehicle 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 is made by the dealer to a finance house (usually a credit institution or finance company within the manufacturer`s group of companies) and a subsequent delivery from the finance house to the customer. These two deliveries are made simultaneously. With both forms of financing, VAT on the total value of the vehicle is paid by the financial house in advance to the Revenue when the customer takes possession of the car. .