VAT Treatment on Motor Dealer Deposits

HMRC have released a new brief clarifying the correct VAT treatment of Dealer Deposit Contributions (DDC), where motor dealers make payments to finance companies on behalf of the end customer, specifically towards the value of a deposit.


Prior to the issuing of this brief, there have been various VAT accounting treatments adopted by motor dealers, however HMRC now accept that this contribution payment is regarded as a discount against the full value of the car with the result that VAT is only payable on the lower amount, i.e. the agreed sales price less the value of the dealer’s contribution to the finance deposit.


As a result, any motor dealers accounting for VAT on the full sale price of the car may have accounted for additional output VAT and may now be in a position to claim this VAT back from HMRC.


If this affects your business and you believe that you may be eligible to make a claim, please contact our VAT helpline for assistance.


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