Partial exemption on hire-purchase arrangements

In a business brief HMRC has explained its suggested method for apportionment of VAT incurred on overheads after the Court of Justice of the EU (CJEU) judgment Volkswagen Financial Services (UK) Ltd (C-153/17).

VWFS a finance house provided credit to customers who wanted to purchase a vehicle. The dispute concerned the VAT that could be recovered on overheads. The CJEU held that VWFS’s overhead costs were a component of the overall supply of goods by way of a hire purchase agreement. There was a right to recovery even when the overheads were only set against the exempt element for costing purposes. Finally a member state could not exclude the value of the goods in a values-based apportionment method because that method would be less accurate than the standard method.

HMRC’s view is that a business supplying goods on hire purchase should be allowed...