When a vehicle leasing company purchases a vehicle they can recover the VAT, which currently sits at 17.5%. At the back end however, they also have to account for VAT when they dispose of their vehicles, so what’s going to happen if VAT moves to 20% or more? Many contract hire companies may have a clause in their Master Hiring Agreement’s which allow them to recover the increased VAT, or reimburse VAT if the rate goes down. For a customer however it will be important to know if they contract hire their vehicles, what the leasing company policy on VAT may be, so that they are aware of potential charges in the future.
Alternatively, some leasing companies may feel the used vehicle market will adjust and may take no action on their residual values or some may adjust their residual values now, to anticipate a future move on VAT by the Government. Is there a definitive answer to this question from an expert out there?
Author: Robert Wastell, Director at Comparecontracthire.com