Volkswagen wins £500,000 VAT tribunal ruling

A TRIBUNAL RULING has found in favour of Volkswagen Financial Services, which entitles it to reclaim £500,000 of VAT.

The company argued that it should be able to reclaim 50% of the VAT incurred on its overheads because it supplies finance, which is VAT exempt, and cars, which are taxable supplies. HM Revenue & Customs argued that the main function of the company was its finance so the 50/50 ratio was unfair.

The tribunal sided with Volkswagen, ruling that when the company entered into a hire-purchase transaction, it made two supplies, one taxable and one non-taxable. By removing the taxable supply from the equation, HMRC was being inherently unfair and unreasonable, the tribunal found.

Lorraine Parkin, head of indirect tax at Grant Thornton, said: "This is a good result for VW and also the finance sector. Allowing VWFS's appeal, the tribunal judgment opens the door for other finance companies to make retrospective claims for VAT which they previously have not explored.

"Finance companies may also consider renegotiating their partial exemption methods to incorporate the tribunal's findings. It is possible, of course, that this matter may be appealed further but protective claims should be considered."