HMRC has outlined its position on how businesses which supply
goods under hire purchase agreements should recover input tax on their
overheads. HMRC Brief 8/2020:change to partial exemption VAT treatment proposes a suggested apportionment method following the CJEU decision in Volkswagen
Financial Services (UK) Ltd (Case C-153/17).
HMRC considers that such businesses should be
allowed to recover input tax on their overheads where recovery is fair and
reasonable. Where a business can evidence the use of its overheads in
transferring the asset as well as making the supply of credit, there is an
entitlement to recover a proportion of the VAT incurred on overheads. There is
no fixed rate which can apply to this, because the proportion will vary
according to the type of hire purchase agreement being provided and the
specific arrangements in place.
The Brief notes that ‘an output values-based method of
apportionment therefore needs to be applied which includes the value of the
asset in order to reach a proper apportionment of the residual input tax’.
The Brief also notes that businesses can continue to
apply any fair and reasonable partial exemption method that has already been
agreed with HMRC.
HMRC has outlined its position on how businesses which supply
goods under hire purchase agreements should recover input tax on their
overheads. HMRC Brief 8/2020:change to partial exemption VAT treatment proposes a suggested apportionment method following the CJEU decision in Volkswagen
Financial Services (UK) Ltd (Case C-153/17).
HMRC considers that such businesses should be
allowed to recover input tax on their overheads where recovery is fair and
reasonable. Where a business can evidence the use of its overheads in
transferring the asset as well as making the supply of credit, there is an
entitlement to recover a proportion of the VAT incurred on overheads. There is
no fixed rate which can apply to this, because the proportion will vary
according to the type of hire purchase agreement being provided and the
specific arrangements in place.
The Brief notes that ‘an output values-based method of
apportionment therefore needs to be applied which includes the value of the
asset in order to reach a proper apportionment of the residual input tax’.
The Brief also notes that businesses can continue to
apply any fair and reasonable partial exemption method that has already been
agreed with HMRC.
