Following the CJEU decision in
VW Financial Services (UK) Ltd C-153/17, HMRC announced that businesses
supplying goods on hire purchase should be allowed to recover input tax on
their overheads where that recovery can be considered to be ‘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.
Any businesses who provide goods and credit under a HP agreement should consider whether they claimed a greater amount of input tax and if so whether a claim should be made following this decision. Possible reasons for under claiming VAT have been suggested by HMRC to be as follows:
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
submitted proposals for a new partial exemption method
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