HMRC has published Revenue and Customs Brief 8(2020) that sets out their view of how VAT partial exemption methods should look following the Volkswagen Financial Services (UK) Ltd case (C-153/17 Volkswagen Financial Services (UK) Ltd). That company sold cars on hire purchase (‘HP’) arrangements and the case examined a partial exemption method which calculated recoverable input tax using a transaction count method. Under that method, each HP contract was counted as one taxable transaction (the car) and one VAT exempt transaction (the finance), meaning that the company’s residual input tax would be apportioned 50% to taxable supplies.
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