In light of a recent EU case, HMRC have issued the above brief confirming that there will be no immediate changes to the VAT rule for supplies made under finance lease. There is no impact on input tax blocked on finance leases of cars, and therefore no current action is needed.

Under UK VAT law hire purchase 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 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.

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. 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.