AM Online

Be aware of the 'bumping' phenomenon

In the motor industry the word 'bumping' means different things to different people. For as long as I can remember the trade have been adjusting figures on new and used car invoices, a process once called 'VAT tricking' but now known as 'bumping.'

These adjustments enabled two things to happen. One, dealers could over-allow on the part exchange to cover any outstanding finance, giving the customer enough equity to buy another car. This often created problems for both the customer and finance company towards the back end of the new finance term.

The second point is where the VAT gets involved. When an over allowance is given for a swapper, which is more common than is realised, the new car price is reduced on the official invoice. This cuts the VAT payable, entailing a loss of income to Customs and Excise. When multiplied throughout the industry this represents a huge amount of lost VAT.

However, now that new car prices have fallen and VAT income has dropped accordingly, invoices are being examined and investigations carried out to prevent further loss of income through 'bumping.' The advice being given to dealers by accountants is to avoid the VAT trap and keep invoices accurate. The counter argument surely must be that anything can be sold for any price, but Customs and Excise don't seem to see it that way, and full VAT must be paid on new vehicles when a part-exchange is involved. If the trade do start playing the game, some finance companies must breathe a sigh of relief.

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