Date of issue: 17h April 2003

Car Dealers Reclaim Vat on Demonstrators

A recent announcement by Customs and Excise regarding refunds of VAT on demonstrator models sold and manufacturer support programmes is good news for the region's car dealers, says Chartered Accountants Clement Keys, Birmingham.

Following recent negotiations with both the Retail Motor Industry (RMI) and the Society of Motor Manufacturers and Traders (SMMT), Customs and Excise has agreed that applications for refunds of VAT overpaid on demonstrator models sold between 1973 and 1996 can be based on dealer estimates.

Customs and Excise have published two charts showing the typical profit achieved during the relevant years for 'prestige' and 'volume' cars and the VAT that would have been payable. Businesses are required to make a reasonable estimate of the number of demonstrators sold in each category for each year in question and then apply the formula to calculate the refund due.

"When seeking a VAT repayment it will be necessary for dealers to prove that they submitted a claim before 30 June 1997, which was capped, or show that they would have submitted a claim but chose not do so because they knew it would be capped," says Steve Simmonds, Director of VAT Services at
Clement Keys.

Clement Keys is also drawing dealers' attention to a new Customs and Excise ruling on VAT refunds in respect of vehicle manufacturer support programmes.

A number of car manufacturers paid 'demonstrator support' or 'bonus payments' to dealers running specific demonstrator models between 1973 and 1996. This was in some cases implemented not by reducing the cost of the car, by way of a credit note, but via a direct payment to the dealer.

Customs and Excise has now agreed that businesses which received support for running a demonstrator fleet and accounted for VAT on those support payment may well qualify for a repayment of overpaid VAT.

Again dealers will be required to supply proof of claims made before 30 June 1997 or explain why they were eligible to apply but chose not to do so.

"Businesses which opted not to submit claims for repayments of VAT because they knew refunds would capped might be tempted to dismiss these latest Customs and Excise pronouncements on the basis that they do not have sufficient evidence to make a case," says Steve Simmonds.

"We would encourage dealers to look into their position carefully, however, because a variety of documents, including correspondence from the company accountant, an internal memo or board meeting minutes, can be used to substantiate a claim."