The E-sig Problem: HMRC’s Latest Attack On Car Dealers

A recent guest opinion published by AM Online suggests dealers need to be careful to ensure the correct figures are used when carrying out finance transactions online. Commenting Glyn Edwards, VAT director at MHA MacIntyre Hudson’s Motor Specialist Team says he has seen a significant rise in HMRC enquiries at both franchised car dealerships and car supermarkets.

The article states that the HMRC’s activity is yielding results with many dealers becoming embroiled in uncomfortable and damaging VAT disputes. HMRC’s current focus is on the values declared by dealers through their Dealer Management Systems (DMS) compared to those used to obtain finance for PCP customers.

The issue arises from the role of finance house systems into which a sales consultant enters the details of a transaction in order to secure finance for their customer. Those systems vary in both quality and the level of training given to dealers and the resulting VAT issues have become known as the ‘E-sig problem’, named after the electronic signature, required from the customer to obtain the finance.

Typically, a sale will incorporate many different elements, all of which need to be entered accurately to ensure that documents match the correct VAT treatment. Those include: the sale price of the car; discounts and deposit contributions; whether it is a qualifying car (in the context of second-hand vehicles); the customer’s cash deposit; part-exchange values; GAP insurance; negative equity and RFL. All too frequently, non-VATable items such as GAP insurance, RFL and negative equity are included within the sale price of the new car, because the sales consultant knows that this will produce the right amount of finance.

What the consultant doesn’t realise is that the values entered are used by the finance house to produce an invoice on the dealer’s behalf. The values on that document will not match the invoice produced by the dealer’s own DMS, on which each of the different elements of the sale are correctly analysed. The VAT problem arises because the accounts team at the dealer declare VAT according to the DMS document, but under PCP a car is contractually sold to the finance company. HMRC unsurprisingly regard the vehicle invoice produced by the finance house as being the true figure for VAT purposes. The amounts involved are significant.

The article goes on to suggest that Dealerships should prepare for a VAT inspection and in the first instance ensure details are input correctly from this moment forward.

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