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VAT and Motability cars - alert

By: Liz Hill and Rob Geary Date: 8 August 2017
Category: VAT

The national charity known as Motability has overall responsibility for the Motability Scheme. It exists to support disabled people by encouraging them to become more mobile by leasing a car, scooter or powered wheelchair.

Motability Operations Ltd (‘MOL’) is an independent company which is responsible for the finance, administration and maintenance of the Motability Scheme. Motability Scheme vehicles are leased to customers by MOL which is authorised and regulated by the Financial Conduct Authority.

The Motability Scheme enables disabled people to lease a new car, scooter or powered wheelchair by exchanging their Government funded higher rate mobility component. The vehicle can be adapted for use by the disabled person if required.

MOL acquires the car from a manufacturer or a dealer and leases it to the disabled person. At the end of the lease, the car is returned to MOL which normally sells the vehicle to a car dealer at the zero rate VAT. That car dealer treats the vehicle as a second hand car and it is entered into the HMRC second hand car scheme. If any profit is made on the sale of the vehicle, VAT is accounted for on the profit margin to HMRC on the car dealer’s VAT return.

MOL leases and sells tens of thousands of Motability cars each year. To encourage dealers to sell their cars, they offer discounts or rebates. The volume rebate is a scheme by which the dealer gets a rebate based upon the number of cars sold January -December. For example, if you sell more than 1,000 in the year the dealer gets a 1% rebate on the purchase price of the total number of cars acquired in that year. This results in a cheque payment being made to the dealer by MOL. HMRC see this rebate as discount to the purchase price of the car.

We are aware that HMRC are visiting dealers which sell second hand Motability cars. They are amassing large assessments going back four years which dealers are having to pay.

Other types of rebate are also being reviewed to ensure the VAT has been accounted for correctly. Again, these issues have resulted in large assessments being issued by HMRC.

As MOL sells the cars at the zero rate to the dealer, it has no obligation to advise the dealers of the necessary VAT adjustments.

If you deal in or have dealt in Motability cars in the last four years and you are or have been in receipt of a volume rebate or other similar rebate or retrospective discounts from MOL, then we would recommend a review of your VAT accounting procedures for the cars put through the second hand car scheme.

HMRC have the right to impose a penalty and interest, however, it is understood that the interest is not being added to VAT assessments at this time.

If you have any queries in regard to the above, please contact a member of the VAT team at Lovewell Blake, both of whom are ex-HMRC staff.
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