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VAT scheme on 'excess' MOT charges

 Hi all! Thanks for taking the time to read this.

As the title suggests need some information on the treatment of MOT and VAT. I have done some research and would like some input on the conclusion reached if willing?


Client is a VAT registered business in the automobile repair industry. Client does not conduct MOT tests however subcontract this and charges the customer the cost plus a mark up.


Should the MOT charge be: (i) outside the scope of VAT; (ii) standard VAT on mark up ('excess' hereafter) or (iii) standard VAT on cost plus mark up.

Research and conclusion

I have reviewed VTAXPER48000 and VTAXPER39000.

The MOT charge would be (i) outside the scope of VAT as "provided the unapproved garage charges on the exact amount it has been charged by the test centre and shows this separately on the invoice to its customer, it may treat this element as a disbursement and also outside the scope of VAT".

The MOT charge would be (ii) standard VAT on mark up as "any amount charged by an unapproved garage to its customer over and above the amount charged by the test centre is consideration for its own service of arranging the test as agent of the customer and is taxable at the standard rate".

The MOT charge would be (iii) standard VAT on cost plus mark up as "if the unapproved garage chooses not to treat the exact amount charged by the test centre as a disbursement, or otherwise does not satisfy all the conditions set out in VTAXPER39000, it must account for VAT on the full invoiced amount".

The 8 conditions stated in VTAXPER39000 being:

  • the person acted as an agent of his client when he paid the third party;
  • the client and not the agent used the goods and services supplied by the third party (in practice, this is usually the key condition);
  • the client was responsible for paying the third party;
  • the agent was authorised by his client to pay the third party on his behalf;
  • the client knew that the goods or services were to be provided to him by a third party;
  • the agent’s outlay is separately itemised when he invoices the client;
  • the amount recovered from the client is exactly the same amount as paid to the third party;
  • the goods or services paid for by the agent are clearly additional to the agent’s own supplies.

How rigorously should these be tested - would it be a fair assumption that most automobile repair business subcontracting MOT would meed these conditions by default?


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01st Jun 2011 00:03

How is it invoiced?
Not sure what the VAT margin scheme has to do with your question (unless I've misunderstood - it is late!)
(It does not seem as though you are asking about MOTs done on "margin" cars being sold...
but just in case you are: MOTs on marginal cars are normally treated as part and parcel of the sale of the (marginal) car. )

For MOTs on cars coming in solely for repair (which would have nothing to do with the VAT margin scheme):
You've already said that your client charges a mark-up on the MOT, so by your own research (VTAXPER39000 - point 7 but also in VAT700 25.1.1), it's not a straightforward disbursement, since the exact amount has not been recharged.

(I think that if there was a mark-up being charged on the MOT, that would stand out to a VAT officer, even before the other 7 points on disbursements were considered)

How is it put in your client's invoices to their customers?
(my view on VTAXPER48000 would be, simply put):
separately itemised MOT at exact cost = disbursement
separately itemised MOT at exact cost + separately itemised "arrangement fee" = disbursement + VAT on arrangement fee
MOT at inflated cost/hidden in/included in other items on the invoice = VAT on the whole lot


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By Coeus
01st Jun 2011 13:38


Apologies for not being clearer - the title is mis-leading! (edited title to avoid future confusion)


The 'margin' was merely a reference to the profit margin on the cost of the MOT to the client, not the Margin Scheme of VAT. I should have thought about the wording more carefully :)


Unfortunately it is currently (iii) standard VAT on cost plus mark up as the client does not seperately itemise the 'arrangement fee'. This was my conclusion too - thank you for re-affirming it. Never hurts to get a second opinion!

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By rexorr
24th Jul 2014 12:48

VAT scheme on excess MOT Charges



Is there different treatment when the  subcontracted MOT garage is a group company  in the same VAT Group?





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