A company has acquired a company car for a director through VW Financial Services.
The paperwork includes an invoice with a tax point addressed to the company for the net, VAT and gross price of the car and this refers to VAT Status ‘Q’.
The finance documents are ‘Hire-Purchase Agreement (unregulated)’ in the company name and show a cash price £25,210, less advance payment £3,500, plus interest £7,283.26 = £28,993.26 plus a purchase fee payable with final rental £10.
This is due as 48 monthly rentals of £343.87 (£16,505.76) and a final rental of £12,487.50.
The finance document refers to mileage restrictions with excess charges and says:
‘When you have made all the payments due to us under this Agreement you will have the option of buying the Vehicle from us for the amount shown at (g) £10 on page 1. If no amount is shown at (g) on page 1, we will deem you to have exercised your option to buy the Vehicle when you have paid all the rentals and other amounts due under this Agreement. You will not have this option if you have not made all the payments or if the hiring of the Vehicle has terminated. Until you have exercised this option, the Vehicle will remain our property’.
There is an ‘Our Agency to Sell’ clause.
I am aware that VW Financial Services has been through the European Courts regarding VAT treatment of hire purchase contracts and wondered how others would treat this agreement for accounting purposes (FRS105)?
My thoughts are a finance lease, but the mileage restriction combined with the balloon payment are a concern.