VAT lease and flat rate scheme

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I have a client who is on the VAT Flat Rate Scheme, he leases a van (I have seen or the paperwork and have confirmed it was definitely a lease -VAT was charged on the individual monthly lease payments)

As he is on the FRS we have never claimed any VAT back on the monthly repayments.

This quarter the lease came to an end, what I didnt know was that the client had an option to purchase the van at the end of 3 years.

I have done some reading and found the following article which explains that if at the start of the contract the final payment is set below anticiapted market value then the deal should be treated as a purchase and VAT should be charged on the supply of goods and not charged on the monthly repayments. 

https://www.simmons-simmons.com/en/publications/ck0bd1kdto2430b85odyf9pf7/13-vat-and-leasing-contracts-with-an-option-to-purchase

 

The customer did not have the money available to make the final payment so he has come to an agreement with the lease provider where he has sold the car to we buy any car for 26,000, we buy any car have then cleared the final lease payment of 14,000 and sent the customer a cheque for the balance of 12,000.

The we buy any car paperwork tell hims he needs to put VAT of 4333.33 (26,000/6) on his VAT return as outputs (makes sense as he has sold the car)

He then has another invoice from the lease company which says he has bought the Van from them for 26,000 with input VAT of 4333.33 - I would have thought this will also go on his VAT return as inputs? 

Both entries will be subject to VAT at 20% not his flat rate percentage?

The final piece of paperwork from the lease company is for the rebate of rentals, this is for the sale price of the VAN less a 2% balloon payment on the total sale price.

This figure of 25,480 has VAT on it, I never claimed VAT on the rental/lease costs (as client was on the FRS) 

I am not sure why this has been issued - maybe the lease company are admitting a mistake, 

ie they are refunding him rentals/lease payment as it should never have been treated as a pure lease ?

My brain is overheating - hopefully someone can tell me if I am on the right track or not, thanks for any input

 

Jon

 

 

 

 

 

Replies (4)

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By rmillaree
05th Oct 2023 12:04

very interesting i have been waiting to see something like this exact situation cropup - would be interested to know whether this situation could have been known about at the outset of the agreement and whether there was any telltale signs this would happen if that was the case. Its tricky enough getting purchase invoices and hp agreements etc without having to rewrite history at the end of the agreement - sigh.

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By Bobbo
05th Oct 2023 12:35

jonibarnes wrote:

 (I have seen or the paperwork and have confirmed it was definitely a lease

jonibarnes wrote:

 This quarter the lease came to an end, what I didnt know was that the client had an option to purchase the van at the end of 3 years.

Something of a contradiction there - you had seen the lease but at the same time did not see the option to purchase clause.

But, ignoring that.

I don't understand why the lease company have given your client an invoice for £26,000. Isn't the whole idea that your client has bought the van from them for £14,000?

When you say:

jonibarnes wrote:

 The final piece of paperwork from the lease company is for the rebate of rentals, this is for the sale price of the VAN less a 2% balloon payment on the total sale price.

This figure of 25,480 has VAT on it

For the avoidance of any doubt, by final piece of paperwork, do you mean 'credit note'?

Also, perhaps having sold the vehicle to 'we buy any car' confused your mind, but at the start of the post you refer to 'van' then later in the post refer to 'car' and then after that refer to it as 'VAN'. Is the vehicle a van or car?

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Replying to Bobbo:
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By jonibarnes
05th Oct 2023 12:57

Sorry its a van.

None of the documents I saw showed the option to purchase. Maybe I was never given this information.

The invoice from the lease company to my client is an odd one, all the sale proceeds went straight to webuyanycar, they then cleared the final payment owed to the lease co and gave my client the remainder. So my client effectively bought the van from the lease company at the price webuyanycar paid for it?

The rebate of rentals could also be called a credit note. However this is the one bit that really befuddles me.

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Replying to jonibarnes:
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By Bobbo
05th Oct 2023 13:56

Even harder to tell without sight of the documents (i'm not suggesting at all you should provide them obviously), but it sounds like your client needs to go back to the leasing company to ask what is going on with this paperwork.

If your client posts the 26,000 invoice from the lease company to their supplier ledger, then the 25,480 (is that 25,480 inc VAT or 25,480+VAT?) as a credit against it, they will be left with a balance of 520 due to or 4,576 due from the lease company. Are either of these amounts actually going to be settled?

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