For those of you in the motor trade it is common practice to involve a finance company when a customer wishes to purchase a new car. In most cases, the finance company requires a minimum deposit value and it is not uncommon for the customer to use their existing car in place of a financial deposit. In many cases the value of the car being exchanged will meet the minimum amount needed for the deposit. If, however, the car is not worth the minimum amount, or is subject to an existing finance deal then it is not uncommon for the car dealer to increase the value of both cars to meet the minimum. This is historically known as ‘bumping’. In reality the customer will pay no more in the transaction.
HM Revenue and Customs (HMRC) expect you to use the ‘bumped’ prices to calculate the amount of VAT due but traditionally dealers have used the lower prices to calculate, believing that as the ‘bumped’ prices are not a true reflection of reality they are in the right. This matter has been taken to a number of Tribunals and in every case the taxpayer has lost, it is worth looking at your processes to see if you need to make changes.
If you have any questions or concerns please make contact with Liz Hill
or Rob Geary
and they will talk you through your options.