VAT and Hire Purchase transactions
The UK currently treats a hire purchase transaction as a taxable supply of goods and an exempt supply of credit, provided the amount of credit is disclosed, which is generally the case as a result of the Consumer Credit Act 1974.
This treatment was common ground in a dispute between HMRC and Volkswagen Financial Services (UK) Ltd. That dispute centred round how much VAT could be recovered on overhead costs.
The Advocate General of the European Court, referring to “the elephant in the room” has opined that, in fact, there is only a single taxable supply of goods. If the Court follows the Advocate General, then this is a decision which will have far reaching effects for those involved in HP transactions, but which at a stroke removes any difficulty as to how much VAT is recoverable.