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Where Taxpayers and Advisers Meet

VAT error

BGM117
Posts:1
Joined:Mon Apr 15, 2024 9:39 am
VAT error

Postby BGM117 » Mon Apr 15, 2024 12:02 pm

Good afternoon,

I have a client in the motor trade purchasing around 2,000 cars p.a.

A software error has resulted in 90 cars being treated wrongly as qualifying cars and input tax claimed (£271K) and output tax paid (£2812K).

The net difference (£10,500) is exactly what would have been paid to HMRC under the margin scheme so HMRC is not out of pocket. However, HMRC is claiming £271K with interest.

Can this massive windfall to HMRC possibly be acceptable?

Any advice please.

les35
Posts:640
Joined:Wed Aug 06, 2008 3:09 pm

Re: VAT error

Postby les35 » Mon Apr 15, 2024 7:07 pm

I would expect such a conclusion, arithmetically.
I would notify HMRC with a covering letter to explain the circumstances.

Trevor S
Posts:113
Joined:Tue Jan 01, 2019 12:37 am

Re: VAT error

Postby Trevor S » Mon Apr 15, 2024 8:06 pm

It does suggest that HMRC have only assessed for an input tax overclaim, and haven't included the output tax overdeclaration.

Perhaps an issue is in HMRC's manual VATMARG02350 https://www.gov.uk/hmrc-internal-manuals/vat-margin-schemes/vatmarg02350

"If a business chooses to sell an eligible item outside the scheme, he will not be able to claim input tax and must charge VAT on the full selling price."

This is also reflected by section 2.5 of the more detailed (although now withdrawn) version of notice 718/1 https://www.gov.uk/guidance/the-margin-scheme-on-second-hand-cars-and-other-vehicles-vat-notice-7181#section2

"You can use the Margin Scheme for some of your sales and the normal rules for others. But, if you have sold a vehicle under the normal VAT rules (that is, you have charged VAT on the full selling price), you cannot go back and apply the Margin Scheme to that sale later."

So you/your client might need to be able to demonstrate that it is an accounting/VAT return completion error, rather than a decision to sell outside of the scheme. This should also help defend against any unjust enrichment defence by HMRC. I am, of course, assuming that VAT invoices haven't been issued by your client to buyers of the cars.


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