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Hire purchase goods and partial exemption

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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.

Issue: 1492
Categories: News