A client is disposing of plant and equipment to a third party which has HP/finance owing on it as follows:
Disposal proceeds, say £10,000 (net)
HP settlement figure, say £4,000
I advised the client to invoice for £12,000 (ie. £10K+VAT) of which £5,000 would be transmitted directly to the finance company, leaving him with a net expected amount of £8,000 in-hand (and he's aware that £2K of this will go out as VAT).
I spent a large part of yesterday afternoon in telephone calls between the client and the third-party/buyer who say that the finance balance should be settled out of the NET figure, ie. £10,000 less £4,000, leaving a net figure of £6,000.
I know the end result comes back to the same net figure, but what would be the correct treatment for VAT. My approach is that the sale is completely separate to how the proceeds are used - but the third-party/buyer is adamant that they do this on a regular basis and their way is the correct way.