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HMRC internal manual

VAT Finance Manual

HM Revenue & Customs
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Credit, debts and related services: debts and related services: block discounting


Block discounting is a means of raising finance on the income stream from rented goods. A retailer (e.g. a TV rental shop) enters into a contract with a customer for the hire of goods. The retailer assigns an interest in the goods, including the right to receive rental payments, to a finance house in return for a capital sum. The finance house advances less than 100% of the rental receivables and benefits from the difference between the lump sum it pays to the retailer and the total rent it will receive over the life of the block discount arrangements.

Liability where title is transferred

Where title to the goods passes from the dealer to the finance house there is a supply of goods by the dealer. The finance house becomes the lesser for the duration of the block discount (typically three years) and accounts for output tax on the rental payments. The retailer will continue to collect the rental payments under the original contract, and will remit them to the finance house.

Note: You should be aware of the distinction between block discounting where title is transferred and HP/Conditional Sale agreements where, by virtue of the VAT (Special Provisions) Order 1995, there is no supply of the goods by the dealer to the finance house.

Liability where title is not transferred

Block discounting of rental agreements, which does not involve the transfer of title in the goods, is the sale of debt being the sale of the future income stream that will arise under the terms of the rental agreements. This is an exempt supply by the dealer under the VAT Act 1994, Schedule 9, Group 5, item 1. Since title to the goods remains with the assignor (i.e. the rental retailer) he is responsible for accounting for VAT on the rental receipts. But as per VATFIN3215, the ‘assignment of a debt’ is not a supply for VAT purposes.

TVs and videos sold back to the dealer

Where the dealer has transferred title to the goods to the finance house and the goods are returned to the dealer, either mid term or at the end of the block discounting period, it has been agreed with the Finance Leasing Association that there will be a standard valuation of £5.00 for each television set or video recorder.


Finance houses prefer to issue self-billed invoices to the dealer for the initial transfer and discounted payment. See VAT Notice 700/62 Self-billing for further information.