31 August 2018
Motor dealers who have given their customers Dealer Deposit Contributions (DDC) in the last four years, may qualify for a VAT refund from HMRC.
The correct VAT treatment of DDCs, by which motor dealers make payments to finance companies on behalf of the end customer, specifically towards the value of a deposit, has been clarified in a new brief released by HMRC. Further details of Revenue and Customs Brief 7 (2018) can be found here.
Prior to the brief being issued, there was confusion on how the VAT on DCCs should have been treated, with different motor dealers adopting different VAT accounting treatments. However, HMRC are now in acceptance that this contribution payment is regarded as a discount on the headline price of the car, and therefore VAT is only payable on the lower amount.
HMRC use the following example, with the headline price of the car at £28,000. This is funded by £20,000 finance, a deposit of £6,000 and a DDC of £2,000. HMRC views the selling price as £26,000 provided that the DDC is shown on the finance and sales documents and is agreed by all parties to the transaction before the deal takes place. There must be no retrospective adjustment to the amount that the customer will pay, nor the amount the finance company will pay the dealer.
Dealerships accounting for VAT on the full sale price of the car may have accounted for additional output VAT and may now be in a position to claim this back from HMRC.
The brief also confirmed that DDCs should not be confused with Manufacturer Deposit Contributions (MDCs). The manufacturer will continue to make a contribution towards the overall selling price of the vehicle. With MDCs it is the manufacturer who can reduce their VAT, not the dealer.
If you are due a VAT refund, or want to check if you are eligible for one, please contact your local UHY automotive specialist.
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