HMRC have issued Brief 7 (2018) confirming the VAT position when contributions are made by motor dealers towards the price of a customer’s car.

HMRC have issued Brief 7 (2018) confirming the VAT position when contributions are made by motor dealers towards the price of a customer’s car.

Speculation has arisen after a number of dealers  argued for a refund of VAT which was believed to have been overpaid on dealer deposit contributions (DDC).

The issue mainly concerns the VAT treatment of dealer deposit contributions, when a vehicle is sold on finance. A customer agrees the purchase price with the dealer including the amount of any deposit required by the finance company. The dealer may then make their own contribution towards the deposit, leading to a VAT over declaration because the dealer accounts for VAT based on the headline price with the DDC treated as if it were cash received. In simple terms, dealers have been accounting for VAT on their own money.

In such an instance, output VAT is due from the dealer on the list price of the car less the contribution.  HMRC are inviting dealers, who may have overpaid output VAT in the past, to submit repayment claims.

HMRC have finally accepted that the DDC is a discount and that VAT is only due on the amounts actually received by the dealer, notwithstanding that a higher amount of VAT is shown on the invoice issued to the finance company.

However, HMRC will only accept properly submitted claims, with a requirement to notify HMRC separately rather than include an adjustment on a VAT return. Those dealers who have always treated DDC as a discount are unaffected, but any who made a large internal correction without notifying HMRC may be exposed to attack.

It is important to act quickly and avoid the risk of HMRC having a change of heart or adjusting legislation.

If you feel this affects you, please get in touch and our specialist motor team can help.