MOT's outside the scope and input vat claim?

Do partial exemption rules apply for supplies made that are outside the scope of vat?

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Does a garage which supplies MOTs, which are outside the scope of vat, have to apply partial exemption rules to input tax on expenditure which relates to taxable and outside the scope of vat supplies ie MOTs? 

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paddle steamer
By DJKL
12th Nov 2019 09:35

What direct input tax do you have re MOTs, what expenditure is expressly re MOTs?

Certainly no materials/consumables, the only input is really labour except maybe the software to issue the certs and any equipment, like exhaust gas analysis, which is used solely in the MOT process (and I would argue it has /could have dual use as it is also a diagnostic tool re servicing)

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Replying to DJKL:
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By Di
12th Nov 2019 09:57

Sorry I may be confusing things but its the expenditure on indirect costs like telephone system,property repairs etc which I am wondering whether I should restrict as the MOT income is much higher than other vatable income in this case.

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Replying to Di:
paddle steamer
By DJKL
12th Nov 2019 10:14

You do a partial exemption calculation if exempt is over the de minimis.

https://www.gov.uk/guidance/partial-exemption-vat-notice-706

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Replying to DJKL:
Psycho
By Wilson Philips
12th Nov 2019 10:24

But MOT fees are not exempt, they are outside the scope. The de minimis limit does not apply to input VAT attributable to such supplies. But as noted below there is no need to apportion overhead costs.

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Replying to Wilson Philips:
paddle steamer
By DJKL
12th Nov 2019 10:53

Of course they are-apologies, I am getting old (It is over 20 years since I dealt with any motor trade clients)

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By spidersong
12th Nov 2019 10:20

HMRC have always taken the view that although the income for MOT's (where done at cost/ standard charge) is Outside the Scope of VAT the expenditure isn't non-business.

So as it's neither exempt nor non-business there's no apportionment needed, as these (apart from things in special orders like white goods/cars) are the only ways you need to apportion expenses.

See:
https://www.gov.uk/hmrc-internal-manuals/vat-partial-exemption-guidance/...

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Replying to spidersong:
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By Di
12th Nov 2019 10:26

Brilliant, thank you so much for clarifying.

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Replying to spidersong:
Psycho
By Wilson Philips
12th Nov 2019 10:27

That's very interesting, and of course contrary to the usual premise that any 'input' VAT directly incurred in respect of outside the scope supplies should be blocked.

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Replying to Wilson Philips:
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By spidersong
12th Nov 2019 10:49

Yes I've always viewed it as a 'fudge' where HMRC have just picked and chosen what to apply because everyone would view restricting garages from recovering on essential road safety measures as a reason for uproar, but they couldn't be bothered to legislate or find a solution that fitted in with existing practice!

They've always tended to justify by accepting that none of the expenditure is directly attributable to the MOT costs but that it all has a duality of purpose as the MOT side is there to generate repairs sales etc.

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By hinakshi
02nd Oct 2020 08:47

What is the formulae to calculate partial exemption
I too have a client who runs a garage and does mot's
However he only uses 2 pieces of equipment that directly used for mot's
So how do you work out partial exemption

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