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HMRC internal manual

VAT Time of supply

Tax points for specific types of supply: Hire purchase, credit sales and conditional sales

 
 
 
 
 
 

Introduction

Goods supplied on hire purchase, or under credit or conditional sale agreements, are treated in the same way as an outright sale where title passes at the outset. This means that, unless the supplier issues a VAT invoice, the time of supply will be linked to the basic tax point.

Nevertheless, it is important to first establish the supply position before considering the time of supply. For example, is the credit self-financed by the supplier? If it is there will be a supply of the goods direct to the customer. On the other hand, the involvement of a third party finance company could mean that there are two supplies comprising of a supply to the finance company and by the finance company to the customer. However, this should not be assumed. For example, if the finance is via an unsecured loan, there is unlikely to be a supply of the goods to the finance company providing the loan.

The following paragraphs consider the time of supply firstly for the supply of the goods and secondly for the supply of the credit element.

Basic tax point

The basic tax point for the supply to the customer will, in most cases, be the date of delivery or collection of the goods. Where there are two supplies (for example to and by a finance company) this is the basic tax point for the supply by the finance company to its customer. The basic tax point for the supply to the finance company will normally occur at the time when the goods are made available to the finance company. Unless the agreement indicates to the contrary, this may be taken to be the time when the finance agreement comes into force, possibly at the time when the last party signs up to it.

VAT invoices

In some cases the finance agreement document also serves as a VAT invoice when it is issued to the customer and the normal time of supply rules apply. A VAT invoice issued to the customer, whether it be the agreement or a conventional VAT invoice, will create the tax point for the supply where it is issued in advance, or within 14 days, of the basic tax point.

Deposits

A deposit paid before

  • the agreement has come into force, or
  • the goods have been removed, or
  • a VAT invoice has been issued

will normally create a tax point.

The precise effect will depend on the circumstances. For example, a customer may place an order for goods and at the same time be required to pay a deposit. This will create a tax point to the extent of the amount paid on the basis that, at that time, a supply is anticipated between the two parties. A finance agreement is subsequently set up via a third party finance company. As a result the initial deposit is converted into a payment by the customer to the finance company, which in turn is credited as a payment by the finance company in respect of the supply of the goods by the original supplier to the finance company. The initial tax point is thereby cancelled.

Unless overridden by other tax points that may have arisen during the intervening period (for example by making available/delivery of the goods), these adjustments will represent further simultaneous payment tax points for both the original recipient and the finance company.

Alternatively, a deposit may be collected by the supplier as part of the finance agreement procedure. It is initially received by the supplier as agent for the finance company but is then immediately “received” by the supplier as part payment for the supply to the finance company. Again, provided this is not preceded by a basic tax point or the issue of a VAT invoice, a payment tax point will have been created for both the supplier and the finance company. You will see from these examples that the effect of a pre-payment is governed by the circumstances in which it is received.

Tax point for the credit element

The tax point for the separate supply of credit is the date of payment of the interest. Where the instalments include an element attributable to the charge for credit this will mean that a tax point occurs each time a payment is received. It is acknowledged that some suppliers may have difficulty in isolating the credit charge where the agreement provides for a fixed rate of interest. In these circumstances an accommodation tax point may be appropriate (see VATTOS6300).