Andrew Needham looks at the VAT implication of selling goods on interest-free credit.
There are two ways retailers can finance interest-free credit; self-finance (i.e. where the retailer simply collects payment over an agreed period of time) and finance provided by a third party finance house.
In the latter case, the finance house makes a charge to the retailer for providing ‘interest-free’ credit to their customer.
If retailers provide the credit themselves they can show the credit charge separately on the invoice it issues to its customer, it will be exempt from VAT and it can reduce the amount of VAT due.
When the customer pays the advertised ticket price the retailer pays the finance house for providing the interest-free credit and this