The Advocate General Opinion was recently released in a case involving the VAT treatment of a common type of hire purchase contract.
The Advocate General Opinion (AGO) has been released in Mercedes-Benz Financial Services UK Ltd (MBFS). The case concerns the treatment of a specific motor vehicle finance agreement called ‘Agility’. MBFS also offers traditional ‘Hire Purchase’ (HP) finance arrangements which are recommended for customers who want to purchase the vehicle and an ordinary ‘Leasing’ product for those that do not. The Agility product is recommended to customers who are undecided as to whether they want to own the car or want to keep open the option of whether to purchase or not.
MBFS considers that Agility is a rental agreement with an option to purchase and therefore, treated its supplies as services for VAT purposes. HMRC disagreed on the basis that because there is the possibility that title to the goods would pass, there is a supply of goods. On reference to the CJEU the AGO has agreed with that taxpayer that the supplies in question are those of services. This can create a significant cash flow advantage of not having to account for output VAT upfront, but when instalments are paid.
To access the Opinion click here.
A more detailed note on the implications should this approach be followed can be found here.
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