being charged vat twice for my van?!!!

nick_wilson_3

hi, just over 2 years ago a friend if mine leased a brand new van, after two years i took over and the van was transfered by the broker in to my company name in a hire purchase agreement. the deal was £300.00+vat pm for 27 months and a balloon payment of £4800.00inc vat, iv rang the broker to confirm my balloon and came back to me with a figure of £5400.00!! she says R.B.O.S are charging me the vat again for the sale of the vehicle! but the vat was included in the balloon £4800.00?she says the only way to avoid it is to pay the £4800.00 and then R.B.O.S will charge me a peppercorn fee of around £350.00 pa and they will keep the rights to the van! im really confused with what to do, i will struggle to pay the £4800.00 let alone £5400.00!! can they really charge vat twice? is seems like robbery.the broker says she has looked into the vat thing and its been done to loads of her clients, funnily enough the clients dont seem to be getting the invoice for the second fee in order to claim back she says.

if anyone has any advice i would really apreciate it!!

nick

sdooley

could you voluntarily register your company for VAT so you can recover the VAT you pay?

depends what you sell and who your customers are but maybe ok

nick_wilson_3

im a self employed plasterer,turning over around 30k.i dont realy sell materials, only labour. so if i register for vat that would mean id have to charge vat right? if so i will struggle with labour sales.

Elaine_Wilson

You need to check the paperwork carefully. You mention the words hire purchase but I assume you mean lease purchase.

There are two aspects here. The balloon payment was said to be inclusive of VAT. Double check that to be sure. Assuming you are correct (and I can't imagine you would have got that wrong) then payment of that sum will finish your liabilities under the lease.

The problem is that the van at this stage still belongs to the leasing company. So you have two options. One is to continue the lease (@ £350 pa). The second is to buy the van.

If you choose to buy it then this is a separate supply of goods to you so VAT will have to be charged. This is not double charging as the payments under the lease (including the balloon) will have been calculated on the assumption the lease company has ownership at the end.

What does your agreement say about the disposal?

If VAT is charged on the sale then customers should certainly get a VAT invoice, even though in your case you will not be able to reclaim.

nick_wilson_3

thanks for your response!

what do you mean by disposal?end of contract?

whats the difference between lease purchase and hire purchase? i think it was on lease to the previous owner but when it was transfered she put it on hire purchase.i think!

iv only got whats called a pre contract sighned by me at home, il have to ring them up and ask for copies of all docs.the pre contract states balloon inc of VAT.

NICK.

Elaine_Wilson

The difference between hire purchase and leasing is significant for tax purposes. In either case you do not legally own the asset until the final payment is made. But in the case of hire purchase you are treated as owning the asset from the start for tax purposes. In a lease agreement you are not.

Under a hire purchase agreement you would not claim a deduction for the repayments made. You would claim capital allowances on the van right from the start of the agreement. Most of the repayments would be treated as capital and the only other expense claim would be for the interest element.

In tax terms a lease agreement is just an agreement to hire an asset. So tax relief is given on the amounts paid under the agreement. The van is never treated as though you owned it.

Under a hire purchase contract you pay an option to purchase fee which is usually included in with the last payment. This is usually fairly nominal, such as £50. Although legally you are only hiring the vehicle until the end of the term you are treated as having owned it from the start. Repayments under these agreements are not subject to VAT as they are a method of financing a purchase.

A lease purchase is written as a lease contract so that VAT is charged on each instalment. This works better for many VAT registered businesses. You claim tax relief on the leasing payments made and cannot claim capital allowances as you are not deemed to own the vehicle. In fact, most of these agreements are written so that you are not able to acquire the vehicle at the end of the lease. It needs to be sold to a third party (which could be someone you know) who will then sell it on to you.

I think you need to find out what the agreement says about the position after you pay the balloon payment. I suspect that it will say that they still own the vehicle and that it can be sold to a third party which you can nominate. You will then be entitled to, say, 95% of the proceeds. Of course, if it permitted that you be the purchaser you will have to pay the value including VAT.

I hope you get this sorted out. It sounds to me as though you were not made aware of all the terms of the agreement before you signed. Good luck.