European court to decide

Apportionment of input tax

Volkswagen Financial Services (VFS) (UK) provided hire purchase finance for the sales of vehicles made by the Volkswagen group. An issue arose over the treatment of the residual input tax on general overheads. HMRC said the residual input tax for hire purchase transactions was not deductible. VFS said it was entitled to split the tax in proportion to the ratio of taxable transactions to the whole using a partially exempt special method. This would result in a 50/50 split.

The First-tier Tribunal allowed the company’s appeal but the Upper Tribunal overturned that decision. The Court of Appeal ruled that the First-tier Tribunal had been entitled to conclude that the general overheads had been used in part for making taxable supplies of vehicles so HMRC appealed to the Supreme Court.

The court referred the matter to the Court of Justice of the EU. Its questions...