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Firstly, it appears that the relief linked only to the ability of the vehicle to carry the wheelchair will be rescinded and the focus will be solely on the adaptations which enable a wheelchair user to drive or be a passenger in the car.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