In Volkswagen Financial Services v HMRC [2015] EWCA Civ 832 (28 July 2015) the Court of Appeal found that a hire purchase (HP) company’s input tax was attributable to both chargeable and exempt supplies.
When a customer of a Volkswagen dealership wished to purchase a vehicle using finance from Volkswagen Financial Services (VWFS) the vehicle was acquired by VWFS as part of the finance arrangements from the dealer and then supplied by it to the customer on deferred payment terms under an HP contract. VWFS was therefore treated as making two separate supplies to a customer that purchased a car on finance: first a taxable supply of the car; and second an exempt supply of finance. The issue was whether any of the residual input tax incurred by VWFS in respect of its general overheads was deductible against the output tax paid on the...
