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HMRC internal manual

VAT Time of supply

Accommodation tax points: exempt supplies of credit: background

Supplies of goods on credit can involve both a taxable supply of goods and an exempt supply of credit. There is also an exempt supply of credit when a loan is made for interest or for some other form of consideration. In either case businesses can sometimes have difficulty in identifying the proportion of the periodical repayment attributable to the supply of credit and the element in respect of either the goods or repayment of the capital amount in the case of a loan of money.

Neither the supply of the goods or repayment of the loan present time of supply difficulties. In the case of the goods, a tax point will normally be created by their removal or by the issue of a VAT invoice. Repayment of a loan, on the other hand, is not consideration for a supply and so is outside the scope of VAT.

The time of supply for the exempt supply of the credit will normally occur at the time of receipt of each instalment. Identifying the actual credit charge element is when difficulties can arise. This is more likely to be the case with fixed rate agreements where the rate of interest payable is fixed at the out set and cannot be varied during the course of the agreement. Under these agreements the customer is usually required to pay a predetermined number of equal instalments and, although the total charge for the credit is known, it will not necessarily be obvious what proportion of the individual instalments represents the charge for credit. A solution to the problem is a single accommodation tax point for the supply of the credit.

There is unlikely to be a problem in the case of variable rate agreements which allow for the rate of interest to be charged to be altered during the course of the agreement. In these circumstances the amount of each instalment attributable to the credit charge will normally be evident.