It is more than three years since HMRC issued Brief 1/2019 explaining their revised approach following the European Court decision in Mercedes Benz Financial Services [2018] STC 1190. You can find the decision here: www.bailii.org/eu/cases/EUECJ/2017/C16416.html
The underlying VAT question is whether, at the outset of the agreement, the supply is one of goods or of services. This follows from the wording of VAT Act 1994, Sch 4, para 1(2)(b), which reads:
“(2) If the possession of goods is transferred—
(a) …
(b) under agreements which expressly contemplate that the property also will pass at some time in the future (determined by, or ascertainable from, the agreements but in any case not later than when the goods are fully paid for),
it is then in either case a supply of the goods.”
Para 5 of the Brief states that “the correct treatment of PCP and similar contracts depends on the level at which the final optional payment is set.” This is NOT “the correct treatment”! It is HMRC’s application of the ECJ decision in MBFS. Arguably it is not consistent either with the ECJ decision or the VAT Act.
Source Accountingweb
