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Thorny old VAT on MOT's issue

Thorny old VAT on MOT's issue

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I have a garage mechanic client who has charged an inclusive charge to his customers which comprises the cost to him plus a small margin to cover taking the car to and back from the MOT test centre and also, quite importantly to him, so as not to disclose the trade prices he gets for his MOT tests. He treated the MOT charge as exempt on the invoice and adjusted his quarterly VAT returns for output tax on the margin element. HMCE has now assessed for 3 years tax & interest on the MOT costs and cited Gillespie and Genuine Car Services as precedents which are on the face of it indentical in nature to my client's situation.

Have there been any other cases which throw a different light on this?

As there have been several cases gone to tribunal, and I am aware of several garages in the same position right now, would this be an argument that that the guidance is not so clear as to preclude use of ESC at VAT notice 48 para 3.4?

If my client re-issued all the invoices in the period concerned showing the cost to him of the MOT separately from the VAT inclusive part of the charge, would that be sufficient to cancel the assessment (and would there be penalties for, effectively, late VAT invoices)? It would offend me on several levels to recommend this to my client as the result would be that he has to spend several days on his computer to comply with rules which even the tribunal rulings thought were illogical, no more tax would benefit the exchequer since he has already paid the output tax on the margin element, and further, his VAT registered customers would then be in a position to claim more input tax than previously, thus actually depriving the exchequer of funds!

But if this route were legitimate, it would save him potentially several thousand pounds, so if available clearly I must recommend it to him.

Do you think this would work?
Nigel Wayne

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By Les Howard
09th Jun 2006 16:37

This one certainly is a 'bad penny!'
I have come across this situation on numerous occasions.
Whilst the Tribunal decisions have been pretty consistent, a number of garages have had more joy with the ESC.
The major difficulty is that HMRC's practice (and changes in practice) have been poorly publicised. The Tribunal case of M A Ward (Decision 15875)supports this. A number of garages I have dealt with have had similar experience.
I would ask HMRC to apply the ESC, in relation to the value of the MOT, and accept the assessment in relation to the margin (handling charge). This also avoids the need to re-invoice.
Les Howard

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