Date of issue: 15th May 2007

RULING COULD SPARK RUSH TO RECLAIM MOT TEST VAT

Independent chartered accounts Clement Keys says there could be a flurry of activity as garages respond to the latest VAT and Duties Tribunal decision regarding the VAT payable on MOT tests arranged on behalf of customers.

The issue in this long running debate between HM Revenue & Customs and the motor trade is whether VAT is payable when the MOT test is carried out by a third party and the fee charged to the customer exceeds that levied by the MOT testing station.

Following a series of earlier successful Tribunal hearings, HM Revenue & Customs included in Public Notice 700 specific guidance to garages as to how VAT should be accounted for in such circumstances.

There is no VAT payable on MOT tests if they are supplied direct by an approved test centre. A garage that is not authorised to carry out MOT tests can treat the supply of an MOT as a disbursement - which falls outside the scope of VAT - providing the same amount charged by the MOT test centre is shown on the customer's invoice.

However, the Edinburgh Tribunal Centre's decision in the case involving Graeme Duncan, who trades as G Duncan Motor Services, reopens the whole issue.

Mr Duncan used two local MOT test centre, paying them £35.00 for an MOT while invoicing customers £44.00. HM Revenue & Customs argued that VAT would have been payable on the £9.00 Mr Duncan retained if he had shown the approved test centre's fee on customer invoices. Since he did not make this distinction, VAT was due on the full amount.

The Tribunal took the view that the garage was acting as an agent on behalf of the vehicle owner and VAT was therefore payable on the £9.00. It reasoned that the MOT test supply was made solely by the approved test centre because the unauthorised garage could not legally become involved in the MOT testing process.

In light of this ruling, garages that have either been assessed for unpaid VAT or that have been accounting for VAT on MOT test fees now have grounds for seeking a repayment of that VAT.

"Since it is not yet clear whether HM Revenue & Customs intends to appeal this decision to a higher court, garages that believe they are affected by the ruling should consider lodging an appeal and/or submitting protective claims as soon as possible," says director of Indirect Tax Services Steven Simmonds.

"As HM Revenue & Customs will seek to cap refunds to a maximum of three years, garages should discuss the matter with their advisors now because the earlier a claim is made the further back you can go."