VAT Qualifying Car Statement on Finance Lease

Guidance where 50% of VAT on finance lease seems recoverable, but leasing co not providing paperwork

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Since 2019, I believe that a finance lease that has an optional balloon payment approximately equal to the expected value of the car at the end of a lease is treated as an operating lease for leasee, and therefore at least 50% of the VAT can be recovered on the rental payments if the vehicle a qualifying car. Source here: -

https://www.gov.uk/government/publications/revenue-and-customs-brief-1-2...

VIT53300 states where cars leased, the leasing company’s invoice must include a statement on whether each car leased is a ‘qualifying car’ or not. VIT53300 states that a qualifying car is a car which the leasing company was able to recover at least 50% of the VAT back when they originally aquired the car. 

I have a client who has leased a car where the optional balloon payment on the lease is £17.1k and we therefore would like to recover 50% of the VAT. It is highly likely that the car is a qualifying car given that it was a new BMW car from an authorised BMW dealer, however, we do not have any paperwork stating that it is a qualifying car. I have been in touch with BMW leasing and after a 3 months wait today I received a response to say that: -

- "Following receipt of your complaint, I have been in contact with various departments throughout the company. Unfortunately, we have been unable to get the answers you have requested, and at this juncture, I will refer you to His Majesties Revenue and Customs (HMRC) to find the answers you are seeking."

Without the statement, it doesn't seem as though I can claim the VAT as I can't be sure that it is a qualifying car. 

- Have I misunderstood something? Do authoirsed dealers of new cars not need to include the statement?

- Would it be permissable to claim the VAT regardless?

Thanks, Chris

Replies (22)

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By I'msorryIhaven'taclue
14th Nov 2023 20:06

Heads-up, the link in your post is delivering a 404 message.

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Replying to I'msorryIhaven'taclue:
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By Chris2022
15th Nov 2023 09:44

Thanks. The link should be -

https://www.gov.uk/government/publications/revenue-and-customs-brief-1-2...

I have asked AW to update.

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By rmillaree
15th Nov 2023 09:19

"- Have I misunderstood something? Do authorised dealers of new cars not need to include the statement?"

Is this even a lease from day one for vat purposes ? - for rental payments made to date have you had vat invoices detailing rental payments plus vat ?

"if, at the start of the contract, it is set below the anticipated market value, such that a rational customer would buy the asset when they exercise the option, it is a supply of goods, with a separate supply of finance. VAT is due on the supply of goods in full at the outset of the contract, the finance is exempt from VAT"

https://www.simmons-simmons.com/en/publications/ck0bd1kdto2430b85odyf9pf...

If you are actually leasing for vat purposes you will get the invoices as detailed showing monthly rentals/leaae payments plus with notes ref input vat restrictions etc as laid out.

If its not a lease you have bought the car from the start (for vat purposes) - generally you are blocked from claiming vat on car purchases unless they have no private use (thats almost never the case the way the rules are laid out)

Note any half decent leasing company will provide vat invoices as required to from, day one - the laid out guidance should take away uncertainty from the outset as the format is pretty standard.

If it was a lease from the start for vat purposes and you have to make chunkly payment to purchase the vehicle at the end it sounds like the final payment may simply be the vehicle being purchased from the leasing company (ie not a lease payment) - the leasing company should eb able to confirm whether its actually a final lease payment for vat purposes - sounds unlikely to me if they are refusing to issue a leasing invoice - in that regard they are right to refuse invoice for something that it is not.

all my comments here are speculation without sight of all the complete vat paperwork from day one its hard to know whats up - imho thne leasing company should be able to clarfiy vat treatment of all entries as appropriate so no uncertainty.

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Replying to rmillaree:
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By Chris2022
15th Nov 2023 10:17

Thanks. My understanding is that the it is the substance of the agreement that matters and not the paperwork. This is my understanding of what the Revenue and Customs Brief 1 (2019) is about.

https://www.gov.uk/government/publications/revenue-and-customs-brief-1-2...

I feel confident on this point, but unsure what to do if the leasing company is not issuing a qualifying statement as per VIT53300.

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Replying to Chris2022:
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By rmillaree
15th Nov 2023 10:55

"it is the substance of the agreement that matters and not the paperwork."

Yes but who is best placed to understand the substance of the agreement ?- is it not the hp company. Think about it logically - for them to be able to issue the vat invoices as laid out - they need to know if its a lease. So the starting question is is ita lease ? - it would make no sense to me for the leasing companies to specifically construct vat invoices in such a manner that they would be compeltely wromg for vat , that might be the case but it makes logically no sense to me.

Obviously i am presuming that the leasing company is following the rules here - i would fully agree that any leasing company could get it wrong.

2 questions

1 is there anything that indicates that vat invoices should be ignored where they are formally issued along specified guidelines
2 you linked guidance says teh following

"Customers that have recovered VAT on PCP contracts which their supplier amends in the light of the MBFS judgement must adjust their claim accordingly."

this again suggests this shoudl be supplier led.

Even if we take the viewpoint your theory is right - did you not question the hp company to see if they were proceeding along the lines they were lease payments and request vat invoices- would seem stupid for them to be saying a and you are defaulting to b unless there is black and white guidance telling you to overule vat invcoices you have. Also how do you know you are right here are you enough of an expert in how this whole deal has been put together - presuming you are not why isnt tehn optinion of the expert here (the leainig company) being saught ?

Note i dont know if my presumptions are right or not so happy to be corrected here if they are wrong.

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Replying to rmillaree:
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By Chris2022
15th Nov 2023 11:31

I agree with what you are saying. I contacted the leasing company and waited 3 months for a response. They said "Following receipt of your complaint, I have been in contact with various departments throughout the company. Unfortunately, we have been unable to get the answers you have requested, and at this juncture, I will refer you to His Majesties Revenue and Customs (HMRC) to find the answers you are seeking."

This is what has prompted the post. Am I missing something? Can the client reclaim the VAT regardless?

I spoke with a VAT specialist at the start of this who agreed that the VAT should be recoverable.

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Replying to Chris2022:
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By rmillaree
15th Nov 2023 12:15

what exactly did you ask leasing company for ?

do you have original lease agreement - detaling whether its x amount charged plus finance fee? or did you get vat schedule/invoices confirming that it was rental payments plus vat?

i would normally defer to vat specialist so i may be wide of the mark here if that is the case i am happy to learn something new but from my point of view nothing seems clear cut so not sure how anyone can add much in without loking at chapter and verse of all documnetation to date and starting from that point.

Can the client reclaim the VAT regardless?
what makes you think this balloon payment is not purchasing a car rather than being a a lease payment on which vat can be claimed? the fcat soemthing may be able to be a lease doesnt in itself prove it is a lease imho - if teh following tgext is correct would you not agree that this might actually be a purchase outright rather than lease ? if that is a poossibiliuty what leads you to believe thats not the case here ?

"if, at the start of the contract, it is set below the anticipated market value, such that a rational customer would buy the asset when they exercise the option, it is a supply of goods, with a separate supply of finance. VAT is due on the supply of goods in full at the outset of the contract, the finance is exempt from VAT"

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Replying to rmillaree:
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By Chris2022
15th Nov 2023 13:12

I asked for the qualifying car statement they are required to give as mentioned in VIT53300.

Yes, I have the agreement that shows interest charges. It states a number of conditions including restrictions on annual/total mileage.

The balloon payment is optional and Revenue 1/19 seems to deem this as a lease for VAT purposes. The optional payment is £17,127 on a £35k electric car. There are restrictions on mileage per annum. The client will not opt to buy the car.

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Replying to Chris2022:
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By rmillaree
15th Nov 2023 13:33

The balloon payment is optional and Revenue 1/19 seems to deem this as a lease for VAT purposes.

why do you think that is the case -

1 the papwerwork does not match the rules of ten paperwork as outline in the revenue brief - surely that indicates stgrongly that the leasing company think its not as you think it is ?

as posted twice previuously are you 100% certain that it would not fail on the following point ? - seems clear cut to me based on your last post this aint ever ben a lease

"if, at the start of the contract, it is set below the anticipated market value, such that a rational customer would buy the asset when they exercise the option, it is a supply of goods, with a separate supply of finance. VAT is due on the supply of goods in full at the outset of the contract, the finance is exempt from VAT"

note section 4 of the guidance clearly states

4. Hire Purchase (HP) with a balloon payment

"Where the option fee is clearly below the anticipated market value of the asset these supplies are not affected by the MBFS ruling, regardless of the level at which the balloon payment is set."

So if this is an hp agreement (interets being charged strongly suggests it is) and the option fee is clearly below market value (we dont know if it is or not and thats what you should check up on with garage ) then the new rules are ignored and its like it always was - car bought on bog standard finance no vat to claim - would you not agree?

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Replying to rmillaree:
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By Chris2022
15th Nov 2023 13:56

Agree with you say, but I think balloon payment is clearing anticipated MV.

The client isn't going to pay the final sum. The final sum is £17.5k and the car is a BMW i3. This is approximately what 3 year old i3's they are going for on Auto Trader.

Assuming it is within Revenue 1/19,. but supplier isn't treating it that way, what then?

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Replying to Chris2022:
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By rmillaree
15th Nov 2023 14:54

Agree with you say, but I think balloon payment is clearing anticipated MV.

is the option fee the same as the balloon payment?

why would you presume the balloon payment is anticipated mv - client might want to pay as much finance down as they can to minimise costs and might want to pay as little down as they can get to keep monthly payments to minimum possible

Assuming it is within Revenue 1/19,. but supplier isn't treating it that way, what then?

revenue brief advises the following

Businesses must maintain, as part of their business and accounting records, evidence which demonstrates how they have arrived at the figures they have used.

so you would say you think you are right and they are wrong - to help you prove your case that they are wrong you would ask them to provide the reasonable evidence that they are required to maintain so that you can show where they have gone wrong (you may choose to do more subtle request perhaps not asseting they dont know what theya re doing) - if they wont back down you could threaten to report them to the vat office - how much good that would do i do not know.

As you have provide zilch actual evidence on this thread that know for sure this hire purchase company has an option fee below (or above) market value i would recommend you proceed with caution if you are simply presuming they dont know how to do their job here - imho likelyhood here is that they do probably have calcs that are right and proper that backup their stance. How have you done your calcs and how rigorous are they? - not sure why you would preume their calsc are wrong unless you have fact checked them yourself - that seems much safer route presume they are right but ask them to evidence it.

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VAT
By Jason Croke
15th Nov 2023 12:09

If the OP has already "spoke with a VAT specialist at the start of this who agreed that the VAT should be recoverable", then why is there now uncertainty? Are you sure you spoke with a VAT specialist, if you paid for advice then you should go back to them for clarity.

OP quotes VIT53300 but that is not directly connected with the contents of Revenue Brief 01/2019.

Revenue Brief 01/19 is about whether the car lease agreement is a supply of goods or a supply of services and the determining factor is the final payment value. Only the supplier can make the decision as to whether it is a supply of goods or services, this is not a question for the customer to ponder over and the VAT treatment is determined by the supplier alone.

All that Revenue 1/19 does is to confirm whether the supplier charges VAT on each monthly rental (supply of a service) or charges VAT in a lump sum at the start of the lease (supply of goods).

VIT 53300 is referring to the situation when leasing any car, the lease of that car is either subject to VAT (qualifying) or not (non-qualifying), the correct answer being determined by the history of the car, where it was acquired from, etc. When leasing a car, the supplier needs to identify whether the vehicle is qualifying or not and this is shown on the subsequent invoices. Again, there is nothing subjective here for the customer.

Rmillareee has coved everything else very well, you need to forget about "the substance of the agreement", it's not relevant to you, only the seller gets to make that decision, everything else then flows from the suppliers decision.

Not sure why you've written a letter of complaint to BMW, it's a straight forward question to ask of the dealer that sold/leased the car, I find it very odd that nobody (VAT specialist, BMW, client, OP) seems to know whether they've bought a £90,000 car or are just leasing it, BMW should know, perhaps you asked the wrong question, perhaps you need to go back to your VAT specialist.

Only by reading the contract/agreement will the solution be found, anything else would be guessing.

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Replying to Jason Croke:
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By rmillaree
15th Nov 2023 12:34

", I find it very odd that nobody (VAT specialist, BMW, client, OP) seems to know whether they've bought a £90,000 car or are just leasing it"

the problem here is that clients (a) dont clarify with accountant (b) dont clarify with leasing company. I dont really trust the leasing companies here - they can remain silent give the impression thats its a lease when its not - that suits them as buyer presumes some vat is coming back when its not and monthly payments may be less. Or they simply dont look at the info infront of them and default to "cheapest cash price per month" not reasling they are screwed on vat and also screwed ref balloon payments or they choose wroing options due to confusion - lets be honest here if us accountants cant workm it out right that cofnirms it is all more murky than it should be.

I got caught once with a van client said they had bought van - purchase invoice ecen turned up for van purchase - hp agreement wasnt provided on vat return submitted but agreement when it did turn up was was leasing amounts plus vat . Nowadays due to that numpty error i dont do anything without checking what the lease/hp agreement / vat invoices say - if it doesnt look like it tallies what one has been told then query sooner rather than later - albeit its likely to late to dom owt once dotted line has been signed on.

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Replying to Jason Croke:
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By Chris2022
15th Nov 2023 13:03

Thanks for the response Jason.

Although it doesn't exclusively relate to Revenue 1/19, my understanding is that the statement discussed in VIT53300 is required where any input VAT on car leases is being recovered.

I take your point that both things are something that BMW should be leading on. I disagree that substance doesn't matter, because it is the substance of the transaction that Revenue 1/19 refers to.

Not sure why you have an issue with the letter of complaint to BMW, that seems very appropriate to me in this situation if they have got it wrong. If they haven't it seems reasonable that they should be able to explain why.

If you are able to offer any insight into why they haven't got in wrong, that would be appreciated. The optional payment is £17,127 on a £35k electric car. There are restrictions on mileage per annum. The client will not opt to buy the car.

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Replying to Chris2022:
VAT
By Jason Croke
15th Nov 2023 14:42

I can't offer anymore insight than anyone else, we've all read the guidance and it is for BMW to establish the VAT position.

Coming back to your original question....if the balloon payment is £17k and client has no intention of owning the car, therefore no intention of paying the balloon payment, then there is no VAT to reclaim on that £17k as the client hasn't paid it as yet. You can't reclaim 50% of the balloon payment if you are saying this is a lease.

If client does pay the balloon payment at end of term and keep the car, then they can't reclaim the VAT at all (on the balloon payment and the deposit) as there is an input tax block on cars purchased.

Is the problem here that client receives monthly rental invoices from BMW and they show VAT but not the "qualifying" wording or are you saying there are no invoices at all?

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Replying to Jason Croke:
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By rmillaree
15th Nov 2023 15:10

Is the problem here that client receives monthly rental invoices from BMW and they show VAT but not the "qualifying" wording or are you saying there are no invoices at all?

Pretty sure the problem is that all the wording is saying its an hp agreement -(outright purchase day 1 for vat purposes albeit vat block as you say ) there has been no evidence provided to date that any of the payments were lease payments plus vat (no such invoice vat shcedules) - the op for some reason thinks that this is kinda an obviously wrong position to be in (for some uknown reason - i would only presume it was wrong if i had been given calcs and i could pick a hole in them) - wheher hp company would give the evidence they shoudl have is aqn interesting uknown to add in - one would like to think that they have the info on file and can prove what they have done is right - so hopefully that info will be provided.)

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Replying to Jason Croke:
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By Chris2022
15th Nov 2023 17:15

Thanks. Think I have understood my error now.

We missing the qualifying wording, but it doesn't seem at though the matters in 2023.

I think it is likely HP and not finance lease, but will revert to BMW to confirm.

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Mike Thexton
By Michael Thexton
15th Nov 2023 15:00

R&C Brief was primarily a response to the CJEU decision in Mercedes-Benz, and was directed to the finance company supplier. It is indeed for the finco supplier to decide, on the basis of the principles in the R&C Brief/CJEU decision whether it is a finance lease (50% recovery on VAT for business customer) or HP (generally no recovery for customer).
The statement about qualifying cars was introduced following much earlier litigation, when the rules changed to allow finance companies to recover the VAT on the purchase of cars. I think (not sure) it was intended to distinguish between cars that had been bought before the rules changed and those bought afterwards, and may therefore have fallen into disuse because it is no longer very relevant.
However, the key point is, as others have said, what the supplier says on the invoices. If the invoices itemise VAT on each payment, then the supplier is treating it as a finance lease, and I don't think the absence of a "qualifying car" statement is significant. If the invoices don't itemise VAT on each payment - because the VAT was all charged at the outset of the agreement - the finance company is treating it as HP, and once again the absence of a statement is not significant.
What do the invoices say? It may be that the finance co is treating it as HP when it looks much more like a lease - valid reason for complaint - but the claim to input tax has to be based on VAT invoices.

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Replying to mike.thexton:
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By rmillaree
15th Nov 2023 15:16

the op has confirmed the original agreement show interest and never confirmed there were any vat invoices/ leasing plus vat schedules - based on that info i have to guess the op is looking at a bog standard hp agreement here - perhaps if you can confirm please chris?

per op
"Yes, I have the agreement that shows interest charges. It states a number of conditions including restrictions on annual/total mileage."

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Replying to rmillaree:
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By Chris2022
15th Nov 2023 17:11

I think it is probably bog standard HP, but will confirm. Thank you for all of your help on this.

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Replying to mike.thexton:
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By Chris2022
15th Nov 2023 17:13

Really clear. Thank you Michael. I now understand my confusion.

Will revert to BMW, but I think it is likely that they just have treated it as HP.

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By Chris2022
15th Nov 2023 17:10

Thank you for all of the responses. I don't think I understood that it is the supplier's responsibility to apply Revenue Brief 01/19 and that the customer is required to follow the supplier's treatment.

I also misunderstood that the "qualifying car" statement is now redundant.

I will contact BMW again and see if they can issue monthly invoices, however, I think it is likely that they have decided not to apply Revenue Brief 01/19 despite the optional final payment being approximately equal to the market value.

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