Car scrappage scheme
The car scrappage scheme announced in last month’s Budget was officially launched on 18 May 2009. HMRC have published further information on the VAT implications for customers and for participating motor manufacturers and dealers.
The allowance is funded by a £1,000 subsidy from the Department for Business, Enterprise and Regulatory Reform (BERR) and a further £1,000 discount paid for by the manufacturer.
In most cases, VAT cannot be reclaimed on a car purchase even by VAT registered businesses so the discount will only have the effect of reducing the car’s purchase price. Certain VAT registered customers however may have to reduce their input tax in respect of the manufacturers’ discount. This will only be the case where VAT can be reclaimed on the purchase of a car such as for the purchase of a taxi or a driving instructor’s car.
The new Revenue & Customs Brief contains instructions for car manufacturers on the VAT and direct tax implications in respect of BERR’s contribution as well as the additional discount provided. However, as has been widely reported in the press there are some issues with the VAT treatment which have been identified by certain manufacturers.
The tax implications of this scheme should be neutral for most car dealers as the manufacturers’ discount is effectively provided directly to the customer. The “on the road” selling price of the vehicle should remain the same but the customer pays £2,000 less e.g. the “on the road” price minus the manufacturers and BERR subsidies / discounts.