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HMRC puts dealer incentives under the VAT spotlight

Recent activity relating to the VAT treatment of dealer deposits and the possibility that some dealers have been declaring too much VAT, has led HMRC to instigate a wider review on dealer incentives.

It has prompted a warning from Alison Horner, motor VAT specialist at MHA MacIntyre Hudson.

Horner said: “We are aware that dealer groups are currently being contacted by their HMRC teams to provide information on manufacturer rebates, partner packages and any incentive schemes in the past year. As the industry will know VAT is a complex matter in this area and famously led to a battle lasting over 15 years to secure large historic VAT repayments.”

Failing to apply the right VAT treatment can lead to assessments for VAT and the threat of additional penalties and interest. HMRC can assess for under declared VAT for a retrospective 4 year period.

On the plus side any over declarations may result in a claim for the past 4 years, she said.

“Turning to manufacturer and dealer deposit contributions, this can be viewed as a discount offered by the dealer to the customer and reduces the value of the car for VAT purposes.

“We are seeing a number of finance deals where the accounting mechanism results in the dealer contribution being accounted for post the VAT value, leading to a potential over declaration of VAT.”

She said that on the HMRC incentives review, some dealer groups are being asked to provide information on the full range of incentive arrangements and being asked to confirm how VAT has been accounted for.

“We understand that HMRC are intending to review, test and audit the VAT treatment arising from such arrangements.

“Our motor VAT specialist team at MHA MacIntyre Hudson are working closely with our dealer network to provide advice and support on this technically difficult area.

“We are also liaising with HMRC’s National Unit of Motor Expertise on the dealer deposit issues.”

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  • Martin - 10/12/2015 19:38

    These in general are deposit contributions and so should be shown post vat other wise in effect they are just discounts and that is not their aim. They are used to drive finance led routes. Showing as discounts will in fact mean the vat is wrong as the vat will be under paid on the actual vehicle itself. So long as hmrc are looking into that as the malpractice then dealers should be ok of they have treated deposit contributions in the correct way.