HM Revenue and Customs Brief 37/12
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Issued 3 January 2013
VAT: Supplies made under finance leases - EON Aset Menidjmunt
- no immediate changes to whether goods or services - no impact on
input tax blocked on finance leases of cars
Purpose of this brief
This brief confirms to taxpayers who make finance lease
supplies, or who receive such supplies in relation to business cars and
block some of the input tax incurred from deduction, that no current
action is needed in relation to the EON case.
Businesses that make supplies of capital goods under finance
lease agreements and businesses that incur input tax on supplies of
cars under finance lease agreements and block some of that input tax
Under UK VAT law hire purchase (HP) agreements are considered
to be supplies of goods because they expressly envisage that title to
the goods being hired will pass at the end of the hire term. Finance
lease (FL) agreements do not provide for title to pass and are
therefore treated as supplies of services.
The CJEU recently delivered its decision in the case of EON
Aset Menidjmunt, C-118/11, (EON). Comments made in the
decision suggest that, because the risks and rewards of ownership
largely pass to the hirer in FL agreements, and because this is
recognised in international accounting standards, supplies under FL
agreements may be supplies of goods rather than supplies of services.
This has created uncertainty
in the finance leasing sector.
No change of treatment at this time
HM Revenue & Customs (HMRC) is considering
representations made by industry
representatives and has not reached a final conclusion on whether the
means that FL supplies are supplies of goods rather than supplies of
or, if so, what features are decisive in determining whether a supply
is of goods
rather than of services. Until and unless HMRC make a contrary
should continue to treat hire supplies as set out in currently
guidance. If there is any future change of policy then HMRC will only
changes from a future date and will not require taxpayers to make any
Input tax block on FL cars
The EON decision has also raised questions in relation to the
input tax block as it applies to FL cars. HMRC can confirm that whether
the eventual VAT treatment of FL supplies is as goods or as services FL
cars will continue to have a 50 per cent input tax block applied to
Where taxpayers are supplied cars for use in their business
then unless the cars are stock in trade (for example, demonstrator cars
at car showrooms), the car is central to their business (for example,
driving instructors) or the car is not made available for private use,
the input tax they incur is subject to a block on deduction. Normally
input tax is wholly blocked but where the supply received is a 'letting
on hire' (such as under an FL) the block applies at 50 per cent, rather
than at 100 per cent, of the tax incurred.
Whether FL supplies are eventually concluded to be supplies
of goods, rather than supplies of services, will not affect the fact
that they are 'lettings on hire'. Consequently no change to input tax
blocked on FL supplies can be needed.
About the Author
© Crown Copyright 2013.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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Article Published/Sorted/Amended on Scopulus 2013-01-07 10:04:42 in Tax Articles