HMRC v Volkswagen Financial Services (UK) Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Vos |
| Judgment Date | 12 November 2012 |
| Neutral Citation | [2012] UKUT 394 (TCC) |
| Respondent | LIMITED |
| Appellant | THE COMMISSIONERS FOR HER MAJESTY’S |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Appeal Number | FTC/85/2011 |
[2012] UKUT 394 (TCC)
Appeal number: FTC/85/2011
VAT – partial exemption special method - hire purchase transactions -
taxable supplies of motor vehicles and exempt supplies of credit - whether
residual cost inputs have a direct and immediate link with and are cost
components of taxable supplies of motor vehicles - whether a methodology
which attributes 50% of residual input tax to taxable supplies is fair and
reasonable
IN THE UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
THE COMMISSIONERS FOR HER MAJESTY’S Appellant
REVENUE & CUSTOMS
- and -
VOLSWAGEN FINANCIAL SERVICES (UK)
LIMITED Respondent
Tribunal: Mr Justice Vos
Judge Timothy Herrington
Sitting in public in London on 23 and 24 October 2012
Mr Owain Thomas, instructed by the General Counsel and Solicitor to HM
Revenue and Customs, for the Appellant, the Commissioners of Her Majesty’s
Revenue and Customs (“HMRC”)
Ms Nicola Shaw QC and Mr Michael Jones, instructed by KPMG LLP, for the
Respondent, Volkswagen Financial Services (UK) Limited (“VWFS”)
© CROWN COPYRIGHT 2012
HMRC v. VWFS
DECISION
Introduction
1. This is HMRC’s appeal from a decision of the first-tier tribunal (tax) (the “FTT”)
allowing VWFS’s appeal (the “Decision”) against an assessment to VAT in the sum
of £498,886 issued by HMRC on 16th June 2008 (the “Assessment”) and a decision
letter dated 30th September 2008 upholding the Assessment.
2. The appeal concerns the Partial Exemption Special Method (“PESM”) to be adopted
by VWFS in determining the proportion of residual input tax (i.e. VAT on its
overheads) that it can recover, specifically in relation to VWFS’s hire purchase
(“HP”) transactions.
3. The appropriate proportion of recoverable input tax can be arrived at either by use
of the standard method or by agreeing a PESM with HMRC. For a trader like
VWFS making both exempt supplies and taxable supplies, the standard method
applies a fraction determined by reference to the ratio of taxable turnover to total
turnover.
4. In this case, the parties have agreed to operate a PESM which divides VWFS’s
business into six sectors: retail, wholesale, insurance services, securitisation,
contract disposals and catch-all. It is only in relation to the retail sector and
specifically in relation to the most numerous HP transactions that this dispute has
arisen.
5. So far as the financing transactions undertaken by VWFS (apart from HP
transactions) namely leasing transactions, fixed price servicing transactions and
fixed cost maintenance transactions are concerned, it is agreed that these are taxable
supplies, and that the proportionate part of the residual input tax on overheads
attributable to these transactions is deductible. It is the treatment of the residual
input tax on overheads attributable to HP transactions that is in dispute.
6. The residual input tax in question is accepted to be in respect of overheads that are
attributable in part to exempt outputs (supplies) and in part to taxable outputs
(supplies). In relation to HP transactions, the vehicle is bought in by VWFS from a
vehicle dealer and is then invoiced to the customer at cost without any mark up.
The purchase of the vehicle is agreed to be a deductible input, and the supply of the
vehicle is agreed to be a taxable output. The financing charges (including interest
charges, an acceptance fee and an option to purchase fee) are a mixture of exempt
outputs and taxable outputs. The largest part of the financing charges is an exempt
output since it comprises interest charges (and also an acceptance fee), but smaller
parts are accepted to be taxable outputs (for example, the option to purchase fee and
the settlement charges sometimes levied). We shall refer in this decision to the
financing part of the HP transactions as being exempt outputs; but it should not be
forgotten that that designation is not entirely accurate because small parts of the
financing costs are accepted as being taxable outputs.
7. The issue between the parties before the FTT was as to what was a fair and
reasonable apportionment of residual input tax on costs incurred by VWFS’s retail
sector.
To continue reading
Request your trial
2 cases
-
Volkswagen Financial Services (UK) Ltd v Revenue and Customs Commissioners
...OF APPEAL (CIVIL DIVISION) ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER) MR JUSTICE VOS AND JUDGE TIMOTHY HERRINGTON [2012] UKUT 394 (TCC) Royal Courts of Justice Strand, London, WC2A 2LL Lord Justice Patten Lady Justice Sharp and Lady Justice King Case No: A3/2013/0076 Betwe......
-
The Commissioners for HM Revenue and Customs v Volkswagen Financial Services (UK) Limited
...[2012] UKUT 394 (TCC) Appeal number: FTC/85/2011 VAT – partial exemption special method - hire purchase transactions taxable supplies of motor vehicles and exempt supplies of credit - whether residual cost inputs have a direct and immediate link with and are cost components of taxable suppl......