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HM Revenue and Customs Brief 37/12


HM Revenue and Customs -Tax Authorities

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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 from deduction.


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 EON decision means that FL supplies are supplies of goods rather than supplies of services 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 announcement taxpayers should continue to treat hire supplies as set out in currently published HMRC guidance. If there is any future change of policy then HMRC will only apply any changes from a future date and will not require taxpayers to make any retrospective accounting adjustments.

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 them.

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.

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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

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