SolvedVBDR2420 | Payments: Example of attribution for goods supplied with finance under hire purchase, conditional sale or credit sale agreements: The old method (the 'straight line') method
From HM Revenue & Customs · VAT Bad Debt Relief
The old method to be used to calculate this is detailed below.
Company A supplies a car to a consumer on hire purchase terms, over one year:
| Description | Amount |
|---|---|
| Car Price (including VAT) | £10,000 |
| Deposit | £ 1,000 |
| Amount financed | £ 9,000 |
| Total interest (A) | £ 1,800 |
| Total amount payable (B) | £10,800 |
| Monthly payments | £ 900 |
The customer pays the deposit and three monthly payments and then defaults. The payments should be attributed as follows:
| Description | Amount |
|---|---|
| Payments made (P) | £ 2,700 |
| Interest element of instalments received = P x (A/B) | 2,700 x 1,800/10,800 = £450 |
| Goods value = 2,700 less 450 | £ 2,250 |
| Net outstanding = amount financed (9,000) less goods value (2,250) | £ 6,750 |
| BDR claim amount | 6,750 x 7/47 = £1,005.32 |