VAT Is buying book debts "Outside the scope"?

VAT Is buying book debts "Outside the scope"?

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My client has purchased a portfolio of book debts from a financial institution, (who I believe to be VAT registered). My client then makes money by recovering the debts and hopefully at a profit. The client has other VATable income.

I was looking at the potential partial exemption issue on the realisation of the book debts, when the idea that the purchase of portfolios of debts may be outside the scope was put to me.

A) What do learned experts think about this idea?
B) Have any readers dealt with this issue before?

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By shaun king
05th Sep 2012 13:01

You will need to look at the ECJ decision in the case of GFKL Financial Services AG, C93/10 and depending on the exact circumstances of your client's operation you may find that they are not undertaking an economic activity. This being the case the issue will not be Partial Exemption but an apportionment based on Business/ Non Business use of input Tax.C-93/10  

Although the ECJ case was decided in October 2011 I am not aware that HMRC have issued on guidance on their interpretation and their manuals still refer to awaiting a decision in the above case.

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