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VAT on vehicles adapted for use by disabled

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In mid-December, HMRC gave a summary of responses to a consultation on perceived abuse of the zero-rate VAT relief for supplies of vehicles adapted to the needs of disabled people. This not only summarises the views expressed by 70 respondents, but gave, in brief terms, HMRC’s response and its intentions for making changes.

One of my biggest concerns when reading the original consultation document was that it did not distinguish between the unintended outcomes of the current legislation, and fraud which is encouraged by the mere fact of there being a relief. It may be that weak rules encourage fraud, but this is separate to whether the relief is so widely drawn that it can be used to benefit too wide a group of (unintended) people. I fear, having read the summary response and HMRC’s conclusions, that this distinction remains unclear.

One problem is that disabled people buy high value VAT-relieved cars and then sell them to the able-bodied without VAT, following which the adaptations are removed. The sensible suggestion to counter this was that each customer should be limited to purchasing a VAT-relieved vehicle only once every three years. That’s a clear condition, but it does not in itself deal with fraud. It is interesting that, in para 2.14 of the document, HMRC says: ‘People were also concerned about how this would be policed and enforced.’ However, the ‘government response’ in paras 2.17/2.18 gave no answer to that fear. Are we to deduce from silence that HMRC thinks the fear is groundless?

It raises the question as to how a supplier knows whether a customer purporting to have made no VAT-relieved purchases within the last three years is to be trusted. The proposals also require customers to complete declarations. The declarations will presumably include a statement to the effect that he or she has not purchased a VAT-relieved vehicle in the last three years. This will be backed by penalties for false declaration. The question remains how HMRC will ensure that these certificates are not issued fraudulently.

One presumes that a dealer that is not alerted by other circumstances to the possibility of a fraudulent declaration will be able to accept it, knowing that all risk therefore falls upon the certificate’s provider. This would be apt to make the dealer less vigilant than now. The answer may lie in the proposal that suppliers notify every sale to HMRC. Since this is something of a linchpin in terms of anti-fraud efficacy, it is a pity that only half the respondents commented on it. This process can only work if the information is actually used. On that point, the response from HMRC seems woolly. It basically says that it will work with the DVLA to increase the effectiveness of this arrangement, but comments (at para 2.51) that: ‘in the meantime, suppliers will be required to submit details of zero rated sales of motor vehicles to HMRC.’

As was pointed out to HMRC, there is no point simply collecting information. What is needed is a clear message that the data will be intensively used to detect fraud. That is not forthcoming here. The fear must be that it will go into a black hole, and that fraudsters will quickly learn that there is nothing to fear in issuing false certificates. This could be a recipe for the very fraud it is seeking to counteract.

Clearly, there is a problem to address, and I wish HMRC well in its deliberations. It is a difficult task which has not been made much clearer by the published results of this process.