VAT – Motor Trade issues

HMRC have issued a dedicated update notice for the motor trade. It covers two key areas:

VAT rules for cars and vans

HMRC clarified their interpretation of the definition of a motor car for VAT purposes. The guidance specifically relates to the different VAT rules for cars and vans.

Historically, it has been quite easy to distinguish between cars and vans. For example, vans usually have no rear seats, metal side panels to the rear of the front seats and a load area which is unsuitable for carrying passengers. However, HMRC have noticed that a number of new vehicles are appearing on the market which makes it difficult to distinguish whether the vehicle is a car or a van.

The guidance draws attention to this fact and reminds VAT registered businesses that HMRC publish a list of car-derived vans. In such cases the VAT element of the acquisition price may be deducted (subject to the normal rules) as they are not seen as cars for VAT purposes. If a ‘van’ is not listed then it is the purchaser’s responsibility to obtain confirmation in writing from the supplier that the vehicle meets the technical criteria to be classified as a van for VAT purposes.

Partial exemption

HMRC are also reminding motor traders of the implications of the ECJ decision in Nordania Finans. This concerned claims for output tax over-declared on car sales where input tax was blocked on the purchase of the cars. And this in turn followed the result of an earlier ECJ decision known as the ‘Italian Republic decision’.

HMRC is now asking businesses whose claims have not yet been paid to revise their claims to take account of the partial exemption implications. Where claims have already been repaid by HMRC without making adjustment for partial exemption, HMRC is issuing recovery assessments subject to the appropriate time limits. The claims relate to historic periods and many claims were submitted as part of the business’s ‘Fleming’ claims. The deadline for submitting ‘Fleming’ claims expired on 31 March 2009.

HMRC has updated its current departmental guidance which is likely to be of interest to businesses with claims which are subject to appeal to tribunal.


Case Studies

The Tax Man

Minimise the stress of an investigation and make use of our extensive experience in securing best outcome for our clients

Business Valuation in Distress

Take advantage of our impartial and rigorous due diligence procedures

FD in The Cupboard

Our innovative ideas are here to improve your business performance and secure appropriate and cost effective funding

The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.