HMRC clarifies VAT partial exemption for hire purchase firms

11 June: Following a recent decision in the EU Court of Justice, HMRC has outlined its recommended partial VAT exemption method for businesses that supply goods via hire purchase agreements.

In its latest Revenue and Customs Brief, HMRC  has set out its recommended method for apportioning VAT incurred on overheads for businesses who supply goods through hire purchase agreements.

The new guidance follows the Court of Justice of the European Union (CJEU) judgment C-153/17 Volkswagen Financial Services (UK) Ltd which disputed the extent to which the VAT incurred on the company’s overheads could be recovered.

Although the method set out in the Brief is HMRC’s preferred one for the industry, it will not be compulsory and businesses can continue to apply any fair and reasonable partial exemption method already agreed with HMRC.

HMRC is asking affected businesses to send an email to wmbcassetfinanceteam@hmrc.gov.uk where they have:

• recovered no overhead VAT on hire purchase supplies;
• submitted error correction claims for overhead VAT on hire purchase supplies;
• requested revisions to their partial exemption methods; or
• submitted proposals for a new partial exemption method.