HMRC Brief 8/2020 announces a significant and welcome change in HMRC’s approach to Partial Exemption. I am told that VW have been fighting this battle for 13 years to achieve this result.
The key issue seems quite simple. How should a finance company calculate its recoverable input tax in relation to the provision of finance? The Brief refers to HMRC policy on input tax recovery on overheads and the costs of providing credit.
It has to be said that HMRC are being disingenuous here! The original First Tier Tribunal case  UKFTT 556 referred back to Brief 82/2009, where they stated that overheads are purely cost components of the provision of exempt supplies. They continued to argue this approach in the ECJ.
The current Brief is clearly much more generous towards the trade. It comments that a 50:50 split is not appropriate. This is a ‘dig’ at VW, whose method resulted in a 50% recovery. It is interesting that the worked example in the Brief comes out at 46%!
The Brief is essential reading for those advising finance companies.