I know it's the busiest day of the year but I have a question that is really bugging me.
We have a client that buys vehicles for hire on hire purchase, they are cash vat and pay a deposit to the hire purchase people equal to the vat element.
They are a new client and insist that this is the way they have always done it and that the deposit should pay the vat element so that they can claim the vat back in one go.
My boss has no problem with this as long as the hire purchase people can provide evidence, for if the vat man should come knocking, that this has been allocated purely to vat at their end.
My question would be what would I ask the hire purchase people for? Is there a standard form that they can provide to show evidence or would it be a statement from them that clearly details the allocation?
All we get at the moment is an agreement that shows the break down of the finance but not how the deposit has been allocated.
Hi Steve,
This is quite usual when dealing with HP that the deposit is the VAT or the VAT plus a percentage of the remainder. In essence my understanding in these cases is that your client has in fact entered into a loan agreement with the finance company that the vehicle sellers use. So they borrow that money and pay for the vehicle in full. Therefore all the VAT is claimable immediately. The finance company is now an HP creditor in the accounts rather than the vehicle supplier.
Thanks for your reply, it's much appreciated, especially as I imagine you will be busy today
For once it does make sense
I think the issue is the cash vat part of it. Although the finance company effectively pays for the vehicle, the client doesn't see the money so can't really make a bank payment for anything bar the deposit so that sage picks it up for the vat return. The previous book keeper used to journal the vehicle in which was fine as it left a liability, but made it very difficult to see how much was still owing without having to have a good sort through, bear in mind they have roughly 300 vehicles on finance at any one time
We want to put them on through supplier accounts so separate out the net and vat and pay the vat element with the deposit so it turns up on the vat return, but be able to easily see how much each individual vehicle has left owing on it.
Our only real problem is gaining sufficient evidence for if there was an inspection.
I'm going to call one on Tuesday I think and see what's what.
