The opinion of the CJEU's Advocate General (AG) in the Volkswagen Financial Services case (Case C-153/17) has been released. In the UK, the exemption for VAT on financial services includes the granting of credit under a hire purchase (HP) contract. Car dealers typically split HP contracts into two supplies. One being a taxable supply of cars and the other an exempt supply of credit. This leads to partial recovery of VAT costs as business overheads. HMRC had claimed that the input tax on overheads should not be recoverable at all since none of the overhead costs related to the supply of cars and all to the exempt supply of credit.

The AG has opined that each HP should instead be treated as an indivisible (and taxable) supply of the underlying assets (here, cars). In other words, the UK's treatment of HP contracts is incorrect.

The CJEU is not bound to follow the AG's opinion but often does so. If it does rule along the same lines, then UK taxpayers who have made supplies of HP should consider whether it would be worthwhile making claims to seek to recover historic VAT input tax treated as irrecoverable.