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Guest opinion: Changes to disabled modified car sales may be ‘open to legal challenge’

Glyn Edwards, VAT director at MHA MacIntyre Hudson

The forthcoming budget is likely to see major changes to the ability of dealers to sell vehicles to disabled customers VAT-free.

The current position is that a car/van/ motorhome can be sold at the zero-rate to a person who normally uses a wheelchair, providing that the vehicle is substantially and permanently adapted for a wheelchair user to either drive or be a passenger in the vehicle or specifically to allow a wheelchair to be carried on or in it.

Whilst there have been plenty of arguments about what amounts to substantially and permanently adapted, that part of the legislation will be unchanged.

What the government are proposing is far more fundamental.

New proposals

Firstly, it appears that the relief linked only to the ability of the vehicle to carry the wheelchair will be rescinded and the focus will be solely on the adaptations which enable a wheelchair user to drive or be a passenger in the car.

Secondly, if the Finance Bill is passed as drafted, there will be a limit such that a disabled customer will only be able to buy a new vehicle without VAT once every three years.

This draconian measure is targeted at abusers of the existing relief who have purchased multiple cars, effectively at a 20% discount, which they have then resold at a profit.

The only exceptions to this new rule will be if the customer’s car is written-off or stolen or “HMRC are satisfied” that the disabled person’s condition has worsened.

There are no planned concessions for other changes in circumstances, such as additions to the family which might require a bigger car.

In my view, these changes go much further than is proportionate and will adversely affect disabled customers in a way which may be open to legal challenge.

Many customers opt to change a vehicle more frequently than every three years and for wheelchair users, there is an added stress to the possibility of breakdown in older cars.

Furthermore, giving HMRC the responsibility to judge whether a disability has worsened is a recipe for dispute and distress.

Effect on dealers

Dealers will also be directly affected by the change.

As well as reducing the number of vehicles which can be sold to loyal customers, there is a plan to impose further compliance costs on the industry.

As well as obtaining and retaining eligibility certificates from customers, suppliers will face an additional requirement of submitting returns detailing zero-rated sales; the customer’s name, address and disability.

There is the added potential for damaging breaches of data protection law as dealers will be holding, and transmitting, very personal details about disabled customers.

The proposed changes also tell us something about the limitations of UK VAT policy.

The relief on vehicle sales will still only apply to wheelchair users.

Brexit opportunity

The legislation has failed to keep pace with technical medical advances which mean that many disabled customers are able to use prosthetics rather than wheelchairs, but then fail to qualify for a zero-rated vehicle as a result.

The probable reason for this anomaly is that the UK zero-rates are in a stand-still position whilst we remain in the EU.

The UK is not permitted to extend zero-rates under EU law and Brexit may therefore create an opportunity for the government to modernise this sort of relief to benefit other types of disability in future budgets.

One positive by-product of the updated legislation is the replacement of the word ‘handicapped’ with ‘disabled’.  It’s a good illustration of how the world has changed in its view of disability since the VAT legislation was first written back in the early 1970s.

Author: Glyn Edwards, VAT director at MHA MacIntyre Hudson

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  • Matt - 26/05/2018 14:30

    The changes made from VAT relief, on substantially and permanently adapted motor vehicles for disabled wheelchair users Summary of Responses December 2014, has had a worrying consequences for those that are disabled and in particular those who motorbility are unable to provide appropriate vehicles, such as for those with; sitting disability, double incontinence. These individuals are forced to go without transport which can lead to their deterioration in health, as they are unable to travel to specialist consultancies, who could be based some distance from their home, which in turn leads to an increase burden to the NHS as they become hospitalised. Some disabled overcome the issues surrounding VAT relief by buying second-hand vehicles and making dangerous adaptations themselves, that do not comply with BS or ISO standards, often putting their life endanger by being transported without appropriate restraints. Changes in the HMRC guidance on VAT relief, has seen a number of fines imposed to vehicle suppliers, who have inadvertently supplied VAT vehicles incorrectly. This has resulted in the current situation, where many suppliers refuse to discuss disabled adaptations, whilst a hand full of other suppliers, request proof from the HMRC before even investigating possible alterations. In my case the inability to purchase an appropriate adabted vehicle so that I can be driven laying flat, from the Isle of Wight to Salisbury spinal unit has led to a deterioration in my health. In other cases substantially and permanently adaptions, such as the installation of a wheelchair lift crain, which not only devalues the vehicle but places risk of damage to the vehicle through engineering degradation creep and fatigue, which can cause structural failure at 1.5% to 2% of the structures Ultimate Tensile Strength . Speaking recently to a VAT relief HMRC officer it became clear that they had little or no understanding of engineering principles and I would argue they are not qualified to make an evaluation, on whether a vehicle had or had not been substantially and permanently adapted. The HMRC has failed to tackle in the past, fraudulent use of the original system which could have been achieved with better communication between, DVSA and HMRC who could have insisted on the completion of a existing VAT 718/1, to retrieve VAT on all second hand vehicles that had not previously been taxed under it's ownership, whether that being of a commercial supplier or private individual. Furthermore the consultation failed to complete an accurate equality impact assessment as it did not include; medical advice, occupational therapy, Individual Vehicle Adaptation (IVA), Conformity of Product (COP) advice or mechanical engineers report to meet the needs of those with sitting disabilities and double incontinence. Making the VAT relief, on substantially and permanently adapted motor vehicles for disabled wheelchair users Summary, illegal under the Equalities act. Public sector duty regarding socio-economic inequalities and led to a monopoly in supplying adapted vehicles. It has also led to Motoability becoming the sole supplier of adabted vehicles, which has led to abuses of position and has seen company assets rise to 2.4 billion and the CEO for the company net £1.7million in one year

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