Motorhome deal transcending to 2 VAT rates.

[Mike88]

Has anyone placed a deposit on a motorhome prior to the VAT increase on 1 January 2010 with a view to receiving the vehicle after this date?

 

I am aware of the VAT requirements from accountancy sources and from HMRC. These are that VAT at 15% is accountable for on the deposit and 17.5% on the balance relating to any deal that transcends two VAT rates.

 

I am aware of at least two cases where the dealer is calculating VAT in that way but my dealer is insisting that VAT is calculated on the full amount at the rate in force when the new vehicle is received.

 

Is there anyone else out there who has placed a deposit on a vehicle (either in the form of an early part exchange and/or cash) when the VAT rate was 15% and will receive their new vehicle when the VAT rate is 17.5%. How is the dealer calculating VAT in such cases?

 

If there is anyone in this position I would be very interested to know how the VAT element has been or will be calculated. If anybody does not want to go public they can PM me.

 

Please do not post on the disadvantages of part exchanging motorhomes early as I am well aware of the risks. This is a simple request for information relating to a particular circumstance.

[GypsyTom]

I'll begin by saying that this opinion is not that from an accountant but in my view is simply based on a common sense view of the VAT regulations.

The first point I would make is that if you had paid in full for the M/H in December, the sale would have been at the prevailing VAT rate of 15% as a trader pays VAT on his sales. The fact that the MH wasn't delivered would be irrelevant although, for reasons I detail below I don't even think that this would be possible.

However, a deposit is not a sale and when he sells you the MH in January he will be liable for output VAT on the full value of the sale, which is of course at 17.5%.

How you have paid for the sale is also irrelevant. Even if he gives you free credit for a month or two because he knows you, he will still have to pay VAT on the sale at the prevailing rate when the invoice is raised. If part of the sum was paid in advance or paid later it doesn't matter.

Anyway. look on the bright side. We're talking about roughly two percent here and the difference between the two VAT amounts on a deposit of £1000 is £18.51.

The reason why I don't think that it's possible to pre-sell a MH to beat VAT is that the dealer can't register the MH until he knows the chassis number, registration number etc. 

However, I'm sure that it would have been legal to buy say, a television, in December and pay VAT at the lower rate even though the dealer couldn't get it until January. But a MH is very different for the reasons I've given above.

As I said, this is just a view and I'm happy to be corrected.

[Mike88]

Thanks. As I stated I have already received advice from an accountant and from HMRC confirming the VAT position in relation to a motorhome deposit and purchase. This is a quote from HMRC's letter to me:

 

“…………….the VAT rate is determined by tax points, details of tax points can be found in Public Notice 700 The VAT guide, Sections 14 and 15. The normal rule is that VAT should be accounted for on a deposit or pre-payment at the rate in force when it is received . If a deposit is received before 1 January 2010 for goods or services that are supplied on or after that date the 15% rate of VAT will apply to the deposit and 17.5% will apply to the balance. If a customer pays in full for the goods or services before the 1 January 2010 VAT at 15% may be charged“.

 

There are also anti-forestalling measures and plenty of specific government advice which support the above poistion

 

I am happy with the advice received. What I was looking for was replies from people in the same position as myself.

 

If we were talking about a small amount of money I would agree that this is not a large issue. However, in my case I part exchanged my vehicle early (fully aware of the risks) and the difference in the VAT amount is worth £1000+ so its well worth the bother.

[Mel B]

I am unsure whether you are talking about the VAT on the DEPOSIT, or the VAT on the outstanding BALANCE.

 

I hope it is the latter as if not, the only way you could have a £1000+ difference in the VAT amount on the DEPOSIT would be if you paid a deposit of at least £40,000!!!

 

If you paid the deposit before 1 January 2010 then the rate of 15% VAT is applicable, your dealer should therefore not be charging you any more than this, if he is, as far as I am aware he is breaking the law, maybe not intentionally, but nonetheless he is wrong.

 

The outstanding BALANCE on the motorhome will be paid once you receive it, and will be subject to a rate of 17.5% VAT as it cannot be classed as sold until the transaction is completed so it will be whatever rate of VAT is in force at the date of that transaction that will be applied.

 

What I would be interested to know is what does your purchase agreement say? Does it give a total figure for the motorhome INCLUDING VAT, or is it a figure plus VAT with the VAT rate not being given but to be determined at the prevailing rate on the date you pay the balance?

 

Have you checked with your dealer to see how they are definitely going to 'calculate' the final cost for the payment of the balance? It is not unknown for them to 'adjust' the figures so that the final figure ends up pretty much as was expected in the first place, its all about how they put down the PX value etc.

[PJay]

 

Normaly a deposit, is a deposit, and VAT does not come into it. Vat is paid on the NEW goods price, (which is the amout the dealer would have to pass on to the VAT Man). Vat should not be an issue on the sale of the second hand van. This is my opinion (though it is a good number of years since I used to do VAT returns) and the rules may have changed

PJay

[Mike88]

As I mentioned previously I'm not looking for advice about whether my position is correct because I've already received detailed advice in writing from an accountant and from Her Majesty's Revenue and Customs on the VAT rules. I am in possession of all relevant VAT Notices dealing with deposits and pre-payments and government guidance documents dealing with the transitional arrangements for the VAT change and the anti forestalling arrangements. Frankly I'm overloaded with advice so do not need more.

 

What I am attempting to establish is whether anyone else is in a similar position as me where a deposit was made before the rate change and the balance due after it. There must be many such transactions as dealers received record advance orders at the NEC last October and in the period leading up to the VAT change.

 

So far I am aware of two transactions where the dealer accounts for VAT in accordance with the VAT guidelines (ie 2009 deposit treated for VAT at 15% and the 2010 balance at 17.5%) and one dealer who states that they will absorb any price increase. My dealer wants to account for VAT on the full amount which in effect will result in me being overcharged on the deal by a significant sum because of the size of my deposit. I shall not go into the details because I believe the dealer in question frequents this Board annonymously. Needless to say I am in touch with them.

 

What I was hoping to get from this Board was a better idea of what other dealers were doing in the hope that this would strengthen my case. I would not however reveal the names of the dealers or the people involved.

 

What I don't want is this thread to go off on a tangent on the merits or otherwise of early part exchanging a vehicle as I am well aware of the risks.

[Porky]

I ordered a new van when the old rate existed but was supplied with the 15% rate which was then applied to the whole value ignoring the deposit. I would have thought therefore the reverse situation would be the same ie. VAT at the rate applicable on the date of invoice (yax point) and the deposit for VAT purposes is irrelevant.

You say you have received detailed information on this so I can not quite see what influence my experience would have on your case one way or the other.

[Clive]

Porky, I think you were lucky and the vendor swallowed the 2.5%. Perhaps you did not haggle enough initially??

 

I believe the level of VAT is that applicable on the day the money changes hands. (As was stated in the previous post.)

 

C.

 

 

 

[Rosbotham]

There was an exchange about this on another forum a few weeks ago, so not sure if we've already discussed it elsewhere!

 

However, HMRC guidance appears to be that the norm is for dealer to apply 15% on deposit and 17.5% on the balance, but they are at liberty to charge 17.5% on the lot if it suits their admin purposes. I guess you already know that.

 

As to your question, I can't provide experience on motorhomes, but I'm in the middle of a purchase of a Fiat car in the same circumstances - I was charged 17.5% on the whole lot. I didn't bother arguing the point because in my case it was only a £500 deposit, so only amounted to a tenner difference.

 

Paul

 

[Mike88]

Thanks Rosbothan. This is what the HMRC guidance says on your point in the second paragraph:

 

“However, under the special rules you may account for VAT at 17.5%, not 15%, on the payment or amount invoiced before 1 January 2010. You may find it more convenient to do this and to issue a VAT invoice for the 17.5% rate in cases where your customer can recover all the VAT you charge them.”

 

As individuals are mainly not VAT registered the 15% rule should apply to the deposit and 17.5% for the balance.

 

 

 

 

[Rosbotham]

Having looked back on the previous thread on MHF, I guess you're not the same person as that was user name stephenpug. May be worth trying to make contact with him.

 

Are you buying from Marquis by chance?

 

As you'll know, the rules are set out at http://www.hmrc.gov.uk/VAT/forms-rates/rates/rate-rise-guidance.pdf. It makes it clear in there as I say that the default is to charge 15% on the deposit and 17.5% on the balance, but it's at the trader's discretion to account the whole lot at 17.5% if they wish. The example of the customer being able to reclaim VAT is given, but that is clearly not intended to be exhaustive. For example on the earlier thread elsewhere the anti-forestalling measures which end up with traders being subject to greater scrutiny from HMRC if there's more than 6 months between deposit and balance were mentioned.

 

Stephenpug contacted HMRC and I believe was informed that in his situation (which sounds very much like your's, hence my confusion) Marquis were at liberty to charge 17.5%. Morally some may believe it stinks, but legally it's permissible.

 

I'm not trying to defend your dealer, just setting out what was gleaned in a similar case.

[Mel B]

.... but what DOES the sales agreement say? Surely there is a TOTAL cost for the vehicle listed on that including all taxes????? :-S

[Mike88]

Rosbotham. I'm not stephenpug as you have deduced. The 6 month period between deposit and balance is not appropriate in this case by virtue of Schedule 3 to the Finance Act 2009. I have the document you have referred to and many others including VAT Notices and other salient facts. Someone has looked at this carefully. I don't want to go into it in too much detail but if you look at my previous posts I have received specific advice from HMRC which with respect to everyone is good enough for me.

 

I will have a look at the thread on MHF as long as registration is not required to look but, as mentioned in my previous post, I was looking for anecdotal evidence of deals spanning two VAT rates; I was not looking for comments relating to whether HMRC's advice or that of an accountant was right or wrong.

 

Thanks for the responses received but I think I've now got sufficient information.

 

 

 

 

[Rosbotham]

No probs. If you want anecdotal evidence, guess you may need to speak to Stephenpug over there. However, on a post on 29th December he categorically said that he'd exchanged emails with the VATman and "he said it is up to the dealer as to how much to charge 15% or 17.5% he cannot get involved".

 

Appreciate that may not align with what HRMC reps have said to you and may not be the answer you want, but you did say you wanted anecdotal evidence of people in this situation...I've given you two (my Fiat dealer and Steve's motorhome dealer) where the full 17.5% has been levied.

[icdsun]

Mel B - 2010-02-08 9:05 PM

 

.... but what DOES the sales agreement say? Surely there is a TOTAL cost for the vehicle listed on that including all taxes????? :-S

 

Mike

We are a supplier of capital equipment and have several transactions with a similar position to yours, advice from HMRC is as you have previously stated.

The sales contract with your dealer probably covers the VAT element increase to be adjusted in the interim period between ordering and delivery should government taxes increase/decrease

If your van is European you may want to re-negotiate at the more recent Euro rates which have lifted somewhat from a few weeks ago, it may be a gesture your dealer can adapt to for the sake of harmony

 

Chris

[Mike88]

icdsun - 2010-02-08 11:42 PM

 

Mel B - 2010-02-08 9:05 PM

 

.... but what DOES the sales agreement say? Surely there is a TOTAL cost for the vehicle listed on that including all taxes????? :-S

 

Mike

We are a supplier of capital equipment and have several transactions with a similar position to yours, advice from HMRC is as you have previously stated.

The sales contract with your dealer probably covers the VAT element increase to be adjusted in the interim period between ordering and delivery should government taxes increase/decrease

If your van is European you may want to re-negotiate at the more recent Euro rates which have lifted somewhat from a few weeks ago, it may be a gesture your dealer can adapt to for the sake of harmony

 

Chris

 

Thanks. The sales contract does indeed state that VAT will be increased for delivery after January 2010 but the issue is what element of that increase should be charged to the customer. Should the increase be charged on the total price or the balance?

 

The base vehicle is a Fiat but the conversion is British. I'm unsure whether the more beneficial euro exchange rate will be that helpful because it was my understanding that businesses hedged against fluctuations in exchange rates. But it is a point worth considering nevertheless.

[DJP]

VAT is charged at the time of the sale. I.E The date the invoice is raised and transfers the legal ownership from the supplier to the purchaser.

So, if the invoice is dated anytime after 1st Jan then 17.5% vat is chargable. A deposit is not a part payment, It is just a notice of intention to purchase and the sale can at any point after that until the final payment is made can be cancelled with possible penalties, loss of deposit etc.

Simples!

[icdsun]

Either scenario is open to the dealer, to assist with cashflow they may choose to charge vat at 17.5, if they raise an invoice for the full amount on the day you ordered they are liable for the total amount of vat even though you may have to wait 2-3 months for the vehicle to be ready for delivery and final payment received,with this scenario the full amount of vat may become payable by dealer a few weeks after you place order, it will depend on when their vat qtr ends. Your dealer maybe charging at new rate to help with cashflow.

If you have invoice for the mh showing the full price of the van dated before the 1 jan 2010 you have a valid case to pay 15% as the taxpoint is prior to the change

 

Chris