In Ellon Car Clinic Limited v HMRC [2017] TC05813 the First-Tier Tribunal (FTT) allowed the taxpayer’s appeal finding that the fee for a supply of motor services which included a subcontracted MOT, was standard rated only on the excess over the cost of that MOT.

  • MOTs are outside the scope of VAT where the cost does not exceed the statutory maximum
  • Where a garage cannot provide an MOT, HMRC still accept they can treat the supply of a subcontracted MOT as an outside scope supply where the garage is acting as agent on behalf of the customer and HMRCs disbursement conditions are met
  • Ellon took over a business and were temporarily unable to do MOTs: the business was previously an approved test centre and eventually became one again
  • Customers were invoiced as if it continued to be an authorised test centre and the MOT was not separated on the sales invoice
  • All customers were told that another garage would do the MOT
  • Ellon would take the car to an approved centre: if the car failed or needed any work, Ellon would carry out that work for the customer and redeliver the car to the approved centre to retest

HMRC relied heavily on its own VAT Notice and internal guidance and provided only old case law in support of its view: HMRCs guidance requires the exact amount to be recharged and shown separately for it to be treated as a disbursement charged by an agent.

The FTT suggested that it was clear that the MOT element of the fee should be outside scope:

  • Although not binding decisions, there were other tribunal cases which were not appealed all of which found in favour of the taxpayer and looked at whether garages acted as principal or agents
  • It was clear that every customer knew that the MOT was being supplied by a different authorised garage
  • The customer did not need to know who the other garage was
  • It is clear that Ellon were acting as an agent on behalf of the customer and the approved MOT test centre
  • Ellon are entitled to treat only the excess amount over the cost of the second garage’s MOT as standard rated

The judge also joined previous calls from Tribunal cases for HMRC to update its guidance in order for garages to understand how to avoid the trap of being treated as a principal where their intention was to act as agent.

On that basis HMRC’s representative agreed that the penalties issued by HMRC would fail.


Penalties (VAT)

Car of van for VAT?

Case: Ellon Car Clinic Limited v HMRC [2017] TC05813


Wouldn’t it be great and think how much TIME it would SAVE you if someone:

  • READ all the latest tax news, case decisions, new legislation and articles in tax and then summarised them for you?
  • Only alerted you to things that are RELEVANT to you?

How about if that someone also:

  • Updated those summaries in REAL TIME for you
  • ADDED examples, planning points, toolkits and calculators, and
  • Linked all that information together and also provided you with CPD?

Thousands of firms of accountants and advisers are already using as their primary TAX resource.

At a cost of just £1 per day, it’s a no brainer: FREE up your MIND and your TIME (and your wallet).

And...we run our Virtual Tax Partner support service, if you need assistance with a particular issue.