HMRC have released Revenue & Customs Brief 7: VAT – motor dealer deposit contributions, providing guidance to motor retailers, finance companies, and businesses who have purchased vehicles with a dealer deposit contribution.

Dealer deposit contributions (DDC) are offers from dealers to pay some of the deposit due by customers when buying cars or vans on finance.

HMRC are aware that some dealers have accounted for VAT on the headline price rather than the reduced amounts that the customers are paying for the vehicle.

For example:

A customer buys a car from a dealer on finance. The finance provider requires an £8,000 deposit for the £28,000 car, but the dealer has a DDC promotion and pays £2,000 towards the deposit. In effect, the customer only pays £26,000 plus the finance charges.

HMRC’s guidance advises that dealers should be accounting for VAT on £26,000, i.e. the headline price less the DDC.

Some dealers have accounted for VAT on the full £28,000, overpaying VAT on the sale.

Where a dealer has made this error, the normal Error correction procedures should be followed.

HMRC are conscious that some dealers have made claims on the basis that the original consideration has decreased in a later accounting period, under s38ZA of the Value Added Tax Regulations 1995, which HMRC are not going to accept.

HMRC views DDCs as a discount on the headline price, and this discounted price is shown on all documentation. This means it is not a later change to the original sale price and a claim should not be made via s38ZA of the VAT Regulations.


Car or van for VAT?

Correcting VAT errors


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