FSB warns garages about VAT on MOTs.

The Federation of Small Businesses (FSB) is warning car repair businesses who pass on MOTs to testing stations to be aware of confusing VAT regulations.

The warning comes as many car repair businesses which are registered to pay VAT, may have unwittingly incorrectly invoiced customers

It has always been the case that VAT is not added to MOTs when charged on to customers, but HM Revenue & Customs (HMRC) decided a few years back that unless a garage showed the actual MOT cost it paid and passed onto its customers as a separate item on the invoice (“disbursement”) the VAT would be due on the whole bill, including the MOT. The same would apply if the garage separated the costs but charged the full statutory MOT amount whilst keeping any discount given it by the Testing Station to cover service and vehicle handling charge (the discount element is VAT applicable).

After a VAT inspection, some have had to pay a settlement to HMRC based on back tax, interest and penalties, and payment terms have not been consistent. HMRC have also been known to telephone garages to find out how they had been doing their invoicing.

However, HMRC has recently been challenged. A garage owner in Edinburgh won his case at tribunal (Duncan Motor Services number 20100) where the tribunal chairman refuted that HMRC’s own publications had the force of law and that as the repair garage could not legally carry out MOTs it could not charge VAT on them. Now another VAT Tribunal case has been won in London (Martin Peter Jamieson number 20269). Tribunal decisions do not set a precedent (only Courts can do this) and some earlier VAT Tribunal hearings were won by HMRC. However, it may be worth making an appeal following the two successful cases even if technically “out of time” (over 3 years).

Bill Knox, FSB Taxation Chairman, said:

“The FSB strongly advises repair garage owners to consult their accountant with a view to appealing. It doesn’t help that HMRC’s payment terms have so far been inconsistent.”

“With small businesses now spending an average of seven hours per week on regulation alone, it is more important than ever to think small first, and keep things simple. This will relieve many of unnecessary pressure, with time being spent on expansion and innovation.”

ENDS

Notes to Editors:

1. Small businesses employ 58% of the private sector workforce, contribute over 50% of UK GDP and make up more than 99% of all UK businesses.

2. The FSB is Britain’s biggest business organisation with over 210,000 members. It exists to protect and promote the interests of the self-employed, and all those who run their own business. More information is available at www.fsb.org.uk.

Contacts:

For interviews with FSB Chief Spokesman Stephen Alambritis or other senior FSB personnel please contact the FSB Press Office.

FSB Press Office
Matthew Knowles: 020 7592 8113 / 07917 628991

Simon Briault: 020 7592 8128 / 07917 628998

Belinda Webb: 020 7592 8121 / 07825 125 695

For regional FSB contacts please go to www.fsb.org.uk/regions