New Judgment: Volkswagen Financial Services (UK) Ltd v Commissioners for HMRC  UKSC 26
05 Wednesday Apr 2017
On appeal from:  EWCA Civ 832
This appeal considered, under the ‘partial exempt special method’ agreed by the parties (‘PESM’), what a fair and reasonable apportionment is of residual input tax on costs incurred by VWFS in its retail sector in relation to general overheads in respect of hire purchase transactions which include a mixture of VAT taxable and VAT exempt supply (taxable supply of the vehicle being finance and exempt supply of finance for that vehicle). A secondary issue raised was that the First Tier Tribunal had failed to consider a submission made in the alternative. The Supreme Court referred the main issue of this appeal to the Court of Justice of the European Union. The Court referred the question of, where general overhead costs attributed to hire purchase transactions (which consist of exempt supplies of finance and taxable supplies of cars), have been incorporated only into the price of the taxable person’s exempt supplies of finance, does the taxable person have a right to deduct any of the input tax on those costs? It further referred the question of whether it can be legitimate in principle to ignore the value of the taxable supplies of cars (or their value) for the purposes of arriving at a special method under Article 173(2)(c) of Council Directive 2006/112/EC. On the second issue, the Supreme Court unanimously dismissed the appeal, recognising the flexibility of the tribunal process and considering that where the tribunal is dealing with substantial litigants represented by experienced counsel, it is entitled to assume that the parties will have identified what they regard as relevant issues for decision.