When a customer buys a car on finance, a motor dealer will often make a financial contribution towards the deposit payable by the customer. Dealers who have been accounting for VAT on the headline sale price will have overpaid VAT.
Revenue & Customs Brief 7 (2018) published on 17 July gives an example of an overpayment situation. It refers to a car being offered for sale for £28,000 which requires a deposit of £8,000. Under the dealer’s promotion, a deposit contribution of £2,000 is provided, with the customer providing the £6,000 balance of the deposit by means of a part exchange of an old car and cash. HMRC confirms that it views the deposit contribution as a discount to the headline sale price, so although the invoice to the customer in the example will refer to a £28,000 sale price, VAT should be accounted for by the dealer based on the discounted price of £26,000.
When a car is bought on finance then the sale of the car by the dealer is strictly to the finance company, which then makes the sale to the customer, but this does not affect the dealer’s entitlement to claim a refund.
The VAT refund should be claimed under section 80 VATA 1994. HMRC state that any adjustments on a return made under Regulation 38ZA of the VAT Regulations 1995 have no basis in law to rectify this error. This is because Regulation 38ZA only applies to retrospective discounts given by a manufacturer or an importer, and not to discounts agreed at the point of sale. It is vitally important that the claim is made under the correct provision.
Dealers have 4 years to claim back any overpaid VAT. This means that a refund can only be claimed for VAT periods (usually quarterly) which end within four years of the date of the reclaim. HMRC are very strict with this four year cap so any dealers who have overpaid VAT should make reclaims straight away.
We advise on all aspects of VAT and have made multi-million pound reclaims for clients. We have also been successful in getting HMRC to correct its published guidance on a number of areas, which benefits taxpaying businesses.
For further information relating to the points raised in this article, or other VAT matters in general, please contact Partner and Head of Tax, Julian Moran.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.