On 27 February 2019, HMRC published Brief 1 (2019) which explains when it will treat personal contract purchases and similar contracts (PCP) as single supplies of taxable leasing services for VAT purposes following the Court of Justice of the European Union’s (CJEU) decision in Mercedes Benz Financial Services (C-164/16) (MBFS). In MBFS the CJEU confirmed that leasing arrangements with an option to purchase cannot be treated as a supply of goods unless transfer of ownership had to follow “in the normal course of events”, including it being the only economically rational course for the lessee.

Previously, HMRC regarded supplies made under PCP contracts as supplies of goods and a separate supply of credit. Following the MBFS decision, it now considers that some of these contracts are a single supply of taxable leasing services.

The Brief explains the circumstances in which these contracts must be treated as a supply of leasing services, the date from when the change in treatment must be applied, and how to correct past periods where necessary.

A copy of Brief 1 (2019) can be viewed here.