1 September 2014

The First Tier Tribunal has published its decision concerning (amongst other things) the correct attribution of input tax on the costs of repossessing a car sold on a hire purchase arrangement, when the purchaser defaulted on the HP agreement.
 
In British Credit Trust Limited, the Tribunal decided the input tax on such costs was attributable directly to the taxable sale of the vehicle at auction, and as such was recoverable in full and not at the residual rate.
 
For VAT purposes, the sale of a car on HP terms is treated as a taxable supply of goods at the outset (the car) and an exempt supply of credit (for which the interest is the consideration payable). In this case the subsequent sale of the car at auction was also taxable, and it was this aspect that decided the input tax treatment. The Tribunal considered that the costs were not attributable to the original taxable and exempt supplies, but only to the sale at auction.
 
This decision builds on earlier attribution cases such as Abbey National, BLP Group, Mayflower Theatre Trust, and others. It neatly summarises the principles to be applied in deciding whether there is a sufficiently direct and immediate link between costs and supplies made.
 
Other questions surrounding the VAT treatment of cars sold on HP and subsequently repossessed may be clarified when the CJEU issues its judgment in GMAC UK plc Case C-589/12 on 3 September.