VAT on refinancing a van

[miss t]

A van has been bought on HP and fully paid off. The van is then refinanced for £6000 as the business is short of cash. The business receives cash of £6000 and new HP payments to the finance company start. The busines is VAT registered. What are the VAT implications of the refinancing? Has the business sold the van to the finance company for £6000 inclusive of VAT, in which case £1000 of what it received is VAT and has to be paid to HMRC? If so, has the business then immediately bought back the van from the finance company for £6000 including VAT when the new HP agreement starts (because for VAT purposes the buyer becomes the owner of the asset when a HP agreement is entered into)? Or does the van just always remain the property of the business (ie no sale and no repurchase) and the new HP agreement is just treated as a new loan, with no VAT implications?

Can anyone help? Thanks

[Generix]

A van has been bought on HP and fully paid off. The van is then refinanced for £6000 as the business is short of cash. The business receives cash of £6000 and new HP payments to the finance company start. The busines is VAT registered. What are the VAT implications of the refinancing? Has the business sold the van to the finance company for £6000 inclusive of VAT, in which case £1000 of what it received is VAT and has to be paid to HMRC? If so, has the business then immediately bought back the van from the finance company for £6000 including VAT when the new HP agreement starts (because for VAT purposes the buyer becomes the owner of the asset when a HP agreement is entered into)? Or does the van just always remain the property of the business (ie no sale and no repurchase) and the new HP agreement is just treated as a new loan, with no VAT implications?

Can anyone help? Thanks

If I'm honest I don't know what the standard contractual terms would be for this;

Therefore it should state in the contract what is happening;

I see it one of two ways, either a loan has been secured on a specific asset (being the van) with no title passing; or alternatively this is a sale and leaseback arrangement.

I think the former is more likely.

What does the contract say?

[miss t]

Thanks for your reply. I don't have a copy of the contract but am trying to get hold of it. If it was a sale and leaseback, the new monthly payments would have VAT added to them wouldn't they? Whereas a loan repayment would not. Hopefully I can find out whether VAT has been added to the payments. If yes, I think the answer is a sale and leaseback. If no, I think it must be your first answer of a loan with no title passing, in which case no VAT implications. Would you agree? Thanks