Are you a business owner who has entered into a hire purchase (HP) agreement for the purchase of assets such as machinery or vehicles? If so, did you know that you may be able to reclaim the value-added tax (VAT) on the payments you make under the agreement?

Under UK tax laws, businesses can reclaim the VAT they pay on goods and services that are used for business purposes. This includes the VAT paid on purchases made under an HP agreement. However, there are specific rules and conditions that must be met in order to reclaim VAT on HP agreements.

Firstly, the asset being purchased must be used solely for business purposes. If the asset is also used for personal use, then the portion of VAT reclaimed must be adjusted accordingly. Additionally, the HP agreement must be structured in a way that allows for VAT reclamation. This means that the VAT charged at the time of purchase must be shown separately on the invoice.

To claim back the VAT on HP agreements, businesses must submit a VAT return to HM Revenue & Customs (HMRC) either quarterly or annually, depending on their turnover. The VAT return must include details of the VAT that has been charged and paid on business purchases, including those made under HP agreements.

It is important to note that VAT can only be reclaimed on the payments made under the HP agreement, not on the full value of the asset. This is because the HP agreement involves paying for the asset in instalments, with the VAT being charged and paid on each instalment.

In order to ensure that VAT is reclaimed correctly on HP agreements, it is recommended that businesses seek advice from a tax professional or accountant. They can advise on the specific rules and conditions that must be met, as well as assist with the preparation and submission of VAT returns to HMRC.

In conclusion, if you have entered into an HP agreement for the purchase of assets for your business, it is worth investigating whether you are eligible to reclaim the VAT on the payments made under the agreement. By doing so, you can potentially make significant savings for your business, which can be reinvested in other areas of your operations.