The Producer, a UK company, sells a film to a partnership for, say, £10 million and enters into a 15-year lease.
Invoicing a. Producer issues an invoice to the partnership for £10 million + VAT @ 17.5 per cent ( = £1,750,000).
b. The partnership invoices producer for all 15-year lease payments for, say, £13 million + VAT @ 17.5 per cent (= £2,275,000).
VAT applies where the seller/lessee is a UK company. In the above example, the producer is therefore in a net VAT payable position to the partnership of £525,000 ( = £2,275,000 less £1,750,000). If there is perceived to be a credit risk to the partnership, part of the benefit from the transaction payable to the producer may be escrowed until the VAT works its way through the system.
Purchase price: £10,000,000
Amount placed on deposit by producer at guarantor bank to guarantee lease rental payments: (£9,000,000) Gross benefit to producer (12.0 per cent): £1,200,000 Guarantee cost (estimated at 0.45 per cent): (£45,000) Legal: (£5,000) Audit: (£5,000)
Net benefit: £1,145,000
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