HM Revenue and Customs (HMRC) have advised that they will be publishing new guidance in early 2021 for charges on early terminations.

This comes after a brief which was originally published in September was criticised for not being clear enough.

Revenue and Customs Brief (RCB) 12 (2020) was the brief which came on the back of judgements in Court of Justice of the European Union (CJEU) and said that VAT would be applicable on charges to end and agreement.

At the time they did advise that it would not affect the tax treatment of full or part payments made on account for a taxable supply, which is explained in Revenue and Customs Brief 13/18.

However, following concern from lenders and the BVRLA in October HMRC advised that their operational team would not take any proactive action based on RCB 12 until it had provided additional guidance for businesses and consumers on what VAT is and isn’t applicable on.

In their latest update, HMRC has also confirmed they will not apply the charge retrospectively but instead it will be applicable from the 1st of February 2021.

The new RCB note will be published before this and when it is the September RCB guidance will be withdrawn.

HMRC have already given a little more guidance, advising that where a charge is made which is provided for in a contract but not directly linked to the intended supply VAT will not be applicable.

The example given was for the payment required from a customer if their leave vehicle is written off during the contract. The payment is not linked to the intended supply as the supplier does not agree the customer can write off the car, even if there is a provision for it, and so is outside the scope of VAT. The same would be true of charges for excessive wear and tear.

When the new guidance is published we will let you know of any further update on this.

Leave a Comment

Enter the text you see in the image in the form field above.
If you cannot read the text, refresh the page.
* required fields

Peace of Mind

Check out one of our helpful guides or our explaination of leasing to get all your questions answered.

View our FAQsGuides

Latest News

Get the latest news and blog posts from us.

View all News

Your Guide To Car Leasing

You can unsubscribe at any time

Lease Plan