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Dealers miss out on £1bn VAT claim

An expected wave of VAT repayments to motor dealers over the past two years, totalling more than £1bn, has failed to fully materialise.

That’s according to Ross Bartholomew, a VAT expert in the Motor Sector Group of accountants Baker Tilly.

“This is the biggest mess HM Customs has got itself into for some time,” he says. “Some dealer groups have had some money back, but relatively few have had it all.

It is incredibly complicated, and there is a lot of horse trading involved. The ability of dealers to get the VAT they have overpaid refunded depends to a very large extent on the negotiating skills of the person handling the claim for them.

If it is somebody who is not completely familiar with these things, I’m afraid that there is a danger that Customs will stonewall and confuse them into eventually giving up.

“It can be a frustrating, exasperating process. But the amounts involved are considerable. A particular we have been involved in at Baker Tilly, meant that the money we have been able to get back virtually saved the dealership from liquidation.

It could mean the difference between building a new showroom next year or not for some dealers.”

Bartholomew says there remain a number of sticking points, some of which will be decided by VAT tribunal, about who is eligible and how much they can claim. One of the problems is that a requirement of Customs is that records need only be retained for six years.

The likelihood of anyone having detailed records spanning the period in question, 1973 to 1996, is “virtually nil” in most cases, he adds.

“That is largely why it has become a matter of negotiating skills rather than actual entitlement,” he says.

The VAT repayments relate primarily to demonstrators. It was an appeal by Marks & Spencer to the European Court of Justice that opened up the possibility for motor dealers to reclaim VAT paid both on the profit when these cars where eventually sold, and on manufacturers’ demonstrator bonuses.

It is AM’s understanding that the judgement meant Customs stood to refund more than £1bn to the motor trade alone. The deadline for submitting a claim to Customs expired in June, 2003.

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