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HMRC internal manual

VAT Margin Schemes

From
HM Revenue & Customs
Updated
, see all updates

Assignment of rights in a hire purchase agreement etc

Goods that were obtained on the assignment of rights in a hire purchase (HP) or conditional sale agreement are eligible for the margin scheme provided they were eligible in the hands of the previous owner. If there have been a number of assignments, it is the first person in the chain who must have been entitled to use the margin scheme himself.

This will not apply to goods sold under the margin scheme which were acquired by virtue of an assignment that took place before 1 July 2002. Goods obtained under an assignment before this date were eligible for the scheme under the VAT (Special Provisions) Order 1995 and the VAT (Cars) Order 1992.

From 1 July 2002, amendments were made to the orders to close this loophole and counter avoidance schemes. Goods (usually cars) were not eligible to be sold under the margin scheme as input tax had been recovered by the original purchaser, but became so by virtue of an assignment of rights in a hire purchase or conditional sale agreement.

Evidence to confirm that goods transferred under an assignment of rights are eligible for the schemes

When there has been an assignment of rights, you should be able to establish for assurance purposes that the goods were already eligible for sale under the margin scheme from the records transferred to the new owner.

Evidence under an assignment of rights in an HP or conditional sale agreement

These documents should indicate whether the goods are eligible:

  • the records kept in relation to the assignment,
  • the records kept in relation to the usual checks made on such assignments by the bank or financial institution e.g. the assignment documentation,
  • the customer sales invoice attached to the HP agreement, and
  • the record of checks made by the bank on whether the hirer was eligible to take input tax credit on the goods.

Purchase value of goods obtained under an assignment of rights

Goods obtained under an assignment of rights in a hire purchase or conditional sale agreement

When eligible goods are sold, having been obtained by banks and financial institutions when they were assigned the rights in a hire purchase or conditional sale agreement, the purchase price for the purpose of the margin scheme will be the price paid by the person assigning the rights when they bought the goods.

If there has been a succession of assignments, the purchase price will be the price paid by the first person in the chain.

For assurance purposes you should be able to establish the purchase price from the records kept in relation to the assignment, such as

  • the assignment documentation,
  • the customer sales invoice attached to the HP agreement, and
  • the record of checks normally made by bank and similar organizations on whether the hirer was eligible for input tax deduction.

Goods obtained by banks and financial institutions when they were assigned the rights in a HP or conditional sale agreement before 3 July 2002

The purchase price for goods obtained by a bank or financial institution when they were assigned the rights in a HP or conditional sale agreement before the 1 July 2002 will be price paid at the time of the transfer.