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What evidence do you need to reclaim VAT on a van purchased on HP?

My client has bought a brand new van from the local main dealer.  It has been financed by the main dealer's finance company on a hire purchase.

Client is due a vat refund this quarter and was subjec to a mini compliance check as a result.  He was asked to submit lots of invoices for checking with HMRC before they will release the refund, including the van invoice, which he did.  They have said everything except the van invoice is ok..

1.  VAT inspector initially said the van invoice was not valid because it says "deliver to XYZ Ltd" on it in the customer box.  She threatened to charge penalties for an incorrect claim but gave my client 24 hours to get it sorted. Client spoke to main dealer and they have changed the invoice so it just says "XYZ Ltd" in the customer box.

2. Now today, she is saying that this is still not good enough and the main dealer should not have issued the invoice at all, but it should have come from the finance company.

She has not seen a copy of the hp agreement, but it is quite clearly just a bog standard hp agreement.  I don't believe the finance company ever becomes the legal owner of the van, they are just financing it, so in accordance with section 8.4.2 of the VAT guide, I think she is talking xxxx.

The manager of the van main dealer has been on the phone to her today but she is adamant that she is correct.

Has anyone experienced this before?  Or should we just continue to shoot s 8.4.2 at her?

I don't recall ever seeing a vat invoice issued from the finance company before where a client purchases something on HP.  I think they always come from the vehicle supplier.  If she is right then there are many many people getting this wrong...

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07th Mar 2012 11:30

don't know the exact technical answer.....

.... but I am suspecting that HMRC are looking at the finance company being the owner. See the following link to HMRC guidance.

http://www.hmrc.gov.uk/vat/managing/special-situations/instalments.htm

Its the bit below that may be of some interest.

"Hire purchase agreements

If the finance company becomes the owner of goods, you're supplying the goods to the finance company and not your customer. You don't make a charge for providing the credit. So you account for VAT on the value of the goods at the time you supply them to the finance company. Any commission that you receive from the finance company for introducing them to your customer may be subject to VAT."

So I would be going back and looking at the actual transaction to see what has happened. Did the trader sell the van to the finance company or your client? Maybe you need to go back to the finance company to determine how they are treating this asset.

 

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07th Mar 2012 11:45

HP

It is usual that the dealer sells the goods to the finance company who then resells the goods on to the end customer. The dealer usually says Invoice to : XYZ Finance, and Deliver to : Mr Smith

Your dealer may be getting themselves into trouble if they are changing customer details onteh invoice.......

You will need an invoice - or paperwork to show that - and the HP agreement often has these clauses -  the finance company has sold the goods to your client.

Assuming it is a hire purchase agreement and not a finance lease of course - if it is a finance lease - then the VAT lady is probably correct to disallow.

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