VAT and hire-purchase
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In his article dealing with VAT in relation to hire-purchase or leasing of vehicles, (CM January 19) Johnny Johnson cited as an example a vehicle costing -f:10,000, and said ". . . . the real capital sum involved is £10,000 f 1000 VAT or £11,000".
Under paragraph 3, schedule 3 of the Finance Act 1972, VAT may be calculated by reference to the cash price when a hire-purchase agreement falls within the provisions of the Hire-Purchase Act 1965 (and the corresponding Scottish and Northern Ireland enactments). However, since these provisions apply only to agreements under which the hire-purchase price does not exceed E2000, an agreement in respect of a vehicle costing £10,000 will fall outside their scope, and the cash price will not be relevant for VAT purposes unless the customer has an option under the terms of the agreement to pay only the cash price after the agreement is made.
In other cases, the value for VAT purposes will be the total amount payable under the agreement, including any interest etc, but minus the tax itself. The real "capital" sum involved, using the example given, will be made up of £10,000, plus charges, plus VAT. C. MOYLE, Chief Information Officer, HM Customs and Excise.