Commentary

V6.313 VAT recovery and practical points for motor dealers

Part V6 Business by business

V6.313 VAT recovery and practical points for motor dealers

V6.313 VAT recovery and practical points for motor dealers

VAT recovery for motor dealers

Full consideration of input tax recovery is set out in V3.4. However, there are a number of challenges particular to the motor dealer sector which are worthy of mention.

The input tax blocking order

There is a general block on the recovery of input tax on motor cars. The scope of this provision is addressed in V3.443. It should be highlighted that the blocking order does not apply to 'stock in trade' cars (see below).

Demonstrator and courtesy cars—the stock in trade car rules

Despite the general block on input tax recovery on cars, motor dealers are entitled to recover VAT on stock in trade cars. Generally it is demonstrator and courtesy cars that are likely to fall within this category. The meaning of stock in trade cars and the rules surrounding recovery are set out in V3.443. Dealers recovering VAT on stock in trade cars should not neglect the obligation to account for VAT on the private use of the cars (see V6.312).

Partial exemption and attribution of costs

Some motor dealers will be full taxable and will therefore not need to concern themselves with partial exemption. However, as is apparent from the discussion of motor dealers' activities and supplies in V6.312 they may also have some exempt income streams (eg hire-purchase commission). Whilst a motor dealer may wish to treat this income as relating to the provision of 'incidental' financial services and hence excluded from its partial exemption calculations (see

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