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Dealers face new HMRC threat over VAT claims

Dealers could face more tax bills from the HMRC for VAT claims on the sale of demonstrator vehicles after it claimed it had repaid too much in certain cases.

Many motor dealers have submitted one or more claims for VAT they overpaid on the sale of demonstrator vehicles. Until very recently, the HMRC has repaid those claims without issue, many of which ran into millions of pounds.

HMRC now believes it has repaid too much in some cases.

Chartered accountant Baker Tilly said this reflects a change in the HMRC’s previous view that partial exemption does not generally affect motor dealers.

HMRC now believes some motor dealers will be partly exempt by virtue of the number of demonstrator vehicles sold and, as such, those businesses should reduce the value of their claim by the amount of input VAT they are not entitled to claim on overhead costs.

Graham Bushby, head of motor at Baker Tilly restructuring and recovery, said: “In many cases, motor dealers will not be caught by the partial exemption rules and therefore the refund they have received from HMRC will not be threatened.

“However, the larger dealer groups with high value claims may well be affected and they should prepare themselves to pay back a proportion of the refund received.”

HMRC is writing to car dealers with open claims to request they now calculate whether they are caught by the partial exemption rules.

Those that are caught will need to reduce the value of their claim and resubmit it to HMRC.

The situation is worse for those that have had their claims repaid in the last two years and who may have already made use of the money.

HMRC is entitled to revisit those claims and claw back any VAT it believes it has overpaid to the dealer. It appears HMRC will be pursuing paid claims very shortly.

Bushby said: “It’s unclear as to how HMRC will be pursuing claims and how dealers are expected to pay. It’s being assessed on a case-by case basis at the moment.”

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