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HMRC v Lok’nStore Group

In HMRC v Lok’nStore Group (FTC/05/2013 – 23 June 2014) the UT dismissed HMRC’s appeal against the decision of the FTT to allow a partial exemption special method (PESM).

The issue was whether Lok’nStore should have applied the standard method (based on turnover) to apportion its residual input tax i.e. the input tax incurred on goods and services used to make both taxable and exempt supplies. The standard method must be used unless HMRC either approves or directs the use of a different method (VAT Regs SI 1995/2518 reg 102). A PESM must produce a fair and reasonable apportionment.

Lok’nStore provides self-storage facilities which are subject to the standard rate of VAT. It also provides insurance services which are exempt. Lok’nStore had appealed HMRC’s rejection of its proposed PESM and the FTT had found in its favour.

HMRC argued that the FTT had used the ‘direct...

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