Avoiding the VAT rise on new car

cleagarr_2

Hi

(Hoping this is in the right place...)

I'm just about to order a new car and because it won't be ready until after January 1st I've been told that I will have to pay the VAT on it. My question is this;

if I order pay for the car in full now can I avoid the VAT rise?

Cheers for any thoughts.

Premier_2

It depends when the invoice is raised.

If you agree to pay the dealer in full for the vehicle today, they might be prepared to raise the invoice.

What a dealer won't want to do is raise the invoice today, and so be lumbered with having to send off the amount of VAT due whenever his return is due, whilst you hold off paying any money until January ... or later it its delayed.

AdrianHi

cleagarr wrote: »

if I order pay for the car in full now can I avoid the VAT rise?

I've read the rules published by HMRC on this and the answer is yes. Pay a bigger deposit / whole amount now and you will benefit from the lower VAT rate.

You can decide for yourself if you want to pay in full before knowing 100% for certain the car delivery date and before inspecting it to make sure it is in order.

floss2

As we will shortly be in a similar situation, I will also be checking what my position is if the dealers go bust between me handing over my cash & the delivery date of my car....

Premier_2

floss2 wrote: »

As we will shortly be in a similar situation, I will also be checking what my position is if the dealers go bust between me handing over my cash & the delivery date of my car....

Pay for it on your credit card.

I was suprised when I bought a new car the dealer was happy to accept payment by credit card at no extra cost ... seems they prefer that to having to count out & keep safe a huge bundle of fivers these days.
(not to mention meeting rules on anti-laundering)

motorguy

Premier wrote: »

Pay for it on your credit card.

I was suprised when I bought a new car the dealer was happy to accept payment by credit card at no extra cost ... seems they prefer that to having to count out & keep safe a huge bundle of fivers these days.
(not to mention meeting rules on anti-laundering)

Hmm. I dont think too many dealers will absorb the 2% or so levy on the credit card...

cleagarr_2

Hi all- thanks for replies.

Dealer tells me that as the car won't be made until after Jan, he will have to pay the 2.5% and will have to pass this on to me? I don't know how the game works, but am assuming that he buys from Peugeot, 'deals' to me and keeps the difference?

Hintza

Remember if you pay up front and the dealer goes bust you might have a problem.

Premier_2

pgilc1 wrote: »

Hmm. I dont think too many dealers will absorb the 2% or so levy on the credit card...

I was surprised too, but remember cash costs money to deposit in business accounts too, typically 0.5-1.0%

When you then take into account that the money doesn't have to be checked & counted, can easily be handled safely (unlike cash, how much does securicor charge to collect cash?), doesn't require anti-moneylaundering measures, etc, you can see why they are prepared to pay that extra 1%

Premier_2

cleagarr wrote: »

...Dealer tells me that as the car won't be made until after Jan, he will have to pay the 2.5% and will have to pass this on to me? I don't know how the game works, but am assuming that he buys from Peugeot, 'deals' to me and keeps the difference?

That's nonsense. The fool obviously doesn't know how VAT works.

When he purchases the vehicle, yes he will have to pay VAT at the applicable rate at the time he is invoiced (which is usually at time of delivery) That is called input tax.

But he'll reclaim all that input tax from HMRC, no matter what rate he paid.

When he sells the vehicle, he must collect from you the VAT due at the time of invoice. It is only that amount (called output tax) that he needs to send to HMRC.


The old example of the grocer's brown paper bag (the VAT that is never paid, but heavily processed) is the perfect example.
The seeds supplier germinates a seed and sells this to a nursery, charging VAT
The nursery recovers the VAT and germinates the sappling which is sold to the forester, charging VAT
The forester recovers the VAT and germinates the tree which is sold to the timberyard, charging VAT
The timberyard recovers the VAT and sells the wood to the papermill, charging VAT
The papermill recovers the VAT and sells the paper to the bag making factory, charging VAT.
The bag making factory sells recovers the VAT and sells the completed bags to the wholesaler, charging VAT.
The wholesaler recovers the VAT and sells the paper bags to the shopkeeper, charging VAT
The shopkeeper recovers the VAT ... but doesn't charge any VAT as he gives the bag away for FREE!

JasonLVC

HMRC have just published some guidance (only 50+ pages) on the VAT rate change back to 17.5%.

In answer to the question, this is all about something called Tax Points.

In the scenario mentioned, if the OP pays in full by 31 Dec 2009 then an Actual Tax point is created at the point the money is received....and as it is received in December then it'll be a 15% VAT rate applicable.

The invoice issue date is sort of irrelevant to a degree. A Basic Tax point is created at the time the goods are made available (which would be January and thus 17.5%), whereas the receipt of money creates an Actual Tax point. The issuing of an invoice within 14 days of the receipt of cash is also an Actual tax point but beyond the 14 days, the Basic Tax point comes back into effect.

If the OP is funding the purchase themselves (cash/bank loan), then pay the dealer up front now in full (if you trust them!) and create an actual tax point. Alternatively, pay 50 now and 50% in January and half is at the 15% and half at the 17.5% rate - thus reducing your overall liability and halving your risk exposure. If they are funding via finance supplied by the dealer/manufacturer I doubt very much the finance house would relea the monies to the dealer until the car was physically signed for and taken away by the customer so you'll be knackered basically.


For the anally retentative here's the full guidance which covers all sorts of scenarios. :-

http://www.hmrc.gov.uk/agents/update14/index.htm