HMRC issues new business brief relating to finance leases

HM Revenue and Customs (HMRC) has issued a business brief dealing with the rumours recently circulating in the fleet market place about potential changes to the VAT treatment of finance leases.

If implemented, those changes could have hard cost implications for fleet operators and customers alike, as well as posing cash-flow issues.

The primary question was whether finance leases should be classified for VAT purposes as a supply of goods or a supply of services.

At present, they are generally treated as a supply of services, which means that VAT is payable on each instalment, as opposed to an upfront payment on supply of the vehicle.

However, this treatment came into question as a result of certain comments made by the Court of Justice of the European Union in the case of Eon Aset Menidjmunt. 

HMRC has now issued Business Brief 37/12, which confirms that HMRC’s current view is that nothing needs to change: finance leases remain, for the time being at least, a supply of services and VAT is due on each instalment.

However, in the brief, HMRC also indicate they are continuing to discuss this matter internally and with interested parties, and the position may well still change.

However, it has confirmed that if a change needs to happen, this will only be prospective, meaning that they don’t intend to force taxpayers to make any changes to past periods.

David Raistrick, head of the EMEA Indirect Tax practice at Deloitte, has been involved in the discussions with HMRC. He said: “This is clearly reassuring news for the fleet industry and is, as we have already expressed to HMRC, in our view, the right position.

“It goes without saying that a change to require upfront payment of VAT would have a significant impact on the way that the industry operates and could be hugely detrimental to both fleet operators and customers alike.

“However, as HMRC’s view could still change, taxpayers should remain vigilant, ensuring that they are kept informed of further developments and taking appropriate advice to protect themselves against any future changes.”