Download (UK) Ltd (VWFS) v HMRC Case alert

Case alert
August 2015
VW Financial Services (UK) Ltd (VWFS) v HMRC
The unanimous verdict of the Court of Appeal in this case is
a major victory for VWFS and a major blow to HMRC.
Court of Appeal
The Court of Appeal has issued its long-awaited judgment in
the above case and has allowed the taxpayer’s appeal on both
grounds.
On the first ground, the issue at stake was whether ‘residual’
input tax (VAT incurred on general overheads) could be
reclaimed by VWFS. In cases where a customer of a VW
dealership wished to purchase a vehicle on HP, the dealer
would sell the car to VWFS which, in turn, would then
sell the vehicle to the customer along with the appropriate
exempt supply of finance. VWFS made no margin on the
sale of the car, its profits were made almost entirely from the
exempt supply of finance.
HMRC argued that, on that basis, none of the general
overheads of the business were used in making the taxable
supply of the car. Instead, according to HMRC, the
overheads were more accurately to be regarded as being used
to make the exempt supplies of finance. As such, none of the
residual input tax could be reclaimed. The First-Tier
Tribunal (FTT) disagreed with that view and allowed
VWFS’s appeal considering that VWFS clearly made both
taxable and exempt supplies.
On the second ground, VWFS claimed that it was entitled to
recover 50% of the residual input VAT (on the basis that for
each transaction there were two supplies). In the
circumstances, the Court of Appeal agreed that such an
apportionment disclosed no error of law on the part of the
FTT and accordingly, the appeal was allowed.
HMRC may seek leave to appeal this judgment to the
Supreme Court.
Businesses which provide financial services in a similar
manner to VWFS should ensure they maximise the recovery
of VAT incurred on overhead costs.
If you would like further information please contact:
Aidan Lyons
Associate Director, VAT
T + 44 (0)28 9587 1112
E [email protected]
10th Floor Clarence West Building, 2 Clarence Street West,
Belfast, BT2 7GP
@GrantThorntonNI
www.grantthornton.ie
Offices also in Dublin, Cork, Galway, Kildare, Limerick and Longford.
That decision was overturned by the Upper Tribunal and
VWFS appealed to the Court of Appeal. In a unanimous
judgment, the Court of Appeal has restored the FTT’s
decision. The Court has held that there is no principled basis
for HMRC’s argument that the general overheads of VWFS’s
business should not be treated as cost components of both
the taxable supplies of cars and the exempt supplies finance.
As a consequence, the residual input tax was eligible to be
reclaimed.
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