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VAT reduction advice for dealers

The 2.5% reduction in VAT may be good news for dealers, but they must act quickly to reap the benefits.

Despite the cut creating a small window of opportunity for businesses, Trevor Jones Chartered Accounts warns there is equally short time to prepare staff and systems for the change.

They say dealers should consider postponing the sale of new cars until after the VAT rate has come into force.

This way input VAT will have been recovered on these vehicles at 17.5% but output VAT only declared at 15%.

The dealer then gets a small profit and cashflow advantage plus also gives them a chance to pass the saving on to the customer.

Delaying the sale of profitable margin vehicles should also be considered as this will provide profit and cashflow benefits to dealers by reducing the amount of VAT that needs to be declared on them.

However, with just six days until the VAT cut comes into force, the number of sales dealers can delay will be very low. Most dealers will be selling fewer than 10 cars per week on average during November.

Dealers' margins may be squeezed as customers will be expecting a cut in vehicle prices after the Chancellor asked retailers to pass on the saving immediately.

The chartered accountants says salesmen will have to expalin to buyers of non-qualifying vehicles, such as motability, that there is no VAT and therefore no saving.

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