HMRC Brief on partial exemption calculations for HP transactions following the CJEU decision in VWFS

Fri 19 Jun 2020

Following the 2018 CJEU decision in the case of VW Financial Services (UK) Ltd (VWFS see here), HMRC has issued Brief 8/2020 setting out their updated view of how recoverable overhead input VAT should be determined by businesses that supply goods by way of hire purchase.

HMRC’s updated view is that the proportion of recoverable input VAT should factor in the sale value of the goods to a maximum of the amount financed. After taking account of interest and other costs, this produces a fraction which is slightly less than 50%. This is much closer to the position taken by VWFS.

The Brief invites taxpayers to contact HMRC where they have under-recovered overhead input VAT, where an error has been made in the calculations, or a revised or new partial exemption method is proposed.

Where claims for recovering overhead input VAT based on the VWFS case have not already been submitted, it will only be possible to recover input VAT in respect of invoices going back four years from a current VAT period (SI 1995/2518 reg 29(1A)).

Please get in touch with a member of the Mazars indirect tax team to discuss the impact of HMRC’s Brief on your business.

Chris Lallemand Senior Tax Manager

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