Date of issue: 7th November 2007

VAT ‘FRAUD’ COULD LEAD TO TIGHTEN UP OF MOBILITY RULES

Vehicles that are adapted and supplied to people with disabilities for their personal use are zero rated for VAT under the Mobility programme, which was set up to help disabled people lead more independent lives.  However, this could be set to change after a group of disabled people were caught buying cars and then selling them on at a huge profit.  

Six people were discovered selling up to 60 vehicles each in a two-year period, generating hundreds of thousands of pounds in profit, and chartered accountants Clement Keys says the abuse of the system is thought to be much more widespread. The cars are fitted with relatively minor adaptations, such as a realigned steering wheel or a steering ball – which can be easily removed – and are then sold on to dealers with just a few miles on the clock.  The dealers then sell them as new, pre-registered vehicles, undercutting the retail showroom price.  

Top of the range Mercedes, Range Rovers, BMWs, Porsches and even Bentleys have been targeted, because the VAT saving is maximised on high value, high specification models.“While there is no legislation prohibiting this kind of activity, it is a definite weakness in the Mobility system,” says Steven Simmonds, director of Indirect Tax Services.  

“The Department of Work and Pensions is also investigating possible benefit fraud because those caught so far are genuinely disabled and in receipt of state benefits.” The question is whether they have exaggerated the extent of their disabilities in order to qualify to buy vehicles free of VAT.

Also, people in receipt of incapacity benefit are only permitted to carry out certain types of work, so by ‘trading’ in this way and in these volumes, Mr Simmonds says the group could have breached the benefit conditions which apply.       

Since the six people arrested so far may turn out to be the tip of the iceberg, Clement Keys says it is likely that changes to the Mobility system will be introduced to stamp out activity which effectively defrauds the Exchequer.  Limits may be imposed on the value of vehicles that can disabled people can buy without paying VAT, for example, or restrictions may be placed on how frequently they are allowed to purchase a new car.   

Alternatively, depending on the extent of the abuse, legislation could be brought in which would make this kind of ‘trading’ a criminal offence.