VAT on extended warranty and gap insurance?

Trimmer_2

Hi
I've signed up to buy a van (commercial use).
The deal is that theyb take my van in px and clear the finance. I want added to the cost of the new van and extended warranty and gap insurance.
I went in today to sign the documents and the figures don't tally up. The monthly payment figure is the same but there are other bits that are different. They have included in the VAT calculation the cost of the warranty, RFL and the gap insurance and this means that the deposit figure has risen from my original quote.
My question is - are the warranty, RFL and the gap insurance liable to vat @15%?
I guess they've made an error with the RFL because I know this isn't normally subject to vat.
Any help or ideas?
Thanks
Pete

MX5huggy

Its a little while since I worked in a company selling Warranties and GAP, but from what I remember it depends on the sale value of the policy.

(5% is the VAT on insurance)

If the policy was given away then the dealer would have to pay 5% VAT on the price of the policy to him. If he passed the policy on at cost again it would be 5% VAT.

If he sold the policy for profit it would be 17.5% VAT (15%now) this is to stop the dealer selling a warranty for £5000 and the car for £500 to avoid the VAT.

This was on private sales don't know the position if the buyer is VAT registered.

JasonLVC

There is NO VAT on insurance (including GAP insurance). There IS a Insurance Premium Tax which is 5% but this is NOT VAT (as a VAT registered trader can reclaim the VAT but he cannot reclaim the IPT). WHy the government made IP|T the same value as VAT I do not know.

The Road Fund Lcense is outside the scope of VAT (ie, no VAT is harged) as this is a statutory charge not pen to competition elsewhere (ie, you can only get your RFL from the government so it is not in competition with anyone, thus no VAT).

As for Warranties - if the warranty is insurance backed (ie, it is provided by say Norwich Union and the dealer is just the middleman) then this is 'insurance' and exempt from VAT. If the warranty is in-house and provided by the dealer himself then this is a standard rated (15%) supply as you are not buying insurance, you are buying a future service from the dealer.

(look here for more info - http://209.85.229.132/search?q=cache:P3euZuZ7A5wJ:www.hmrc.gov.uk/vat/sectors/motors/selling-cars.htm+car+warranty,+vat&cd=3&hl=en&ct=clnk&gl=uk )

It sounds like whoever drew your bill up has got it wrong on all three areas in my opinion. Go have another word with them and give them the above link if they disbelieve you.

JLVC

Anihilator

I would guess they have deliberatlly fiddled the deal so they can show your van as costing more than it actually did hence reducing their "profit" on it and hence the VAT payable on it.

As long as your paying the same don't worry.

Trimmer_2

Thanks for the replies.
I'm VAT registered myself so I can claim back the charges. I just thought it was odd that one set of figures didn't match the other.
I think I'll get a personal loan and lend it to my company to buy the van - it'll be alot cheaper than using the business finance offered.
Thanks again.

dacouch

You should be able to buy gap cover seperately from the dealer for a fraction of what they are charging

dacouch

Nice informative post Lostinheaven and spot on.

The only thing I would point out is that Travel Insurance attracts IPT at 17.5% whoever you buy it from. The Government wanting to get as much tax as possible applied it to all sales channels so they could gain as much tax as possible. It caused a lot of fuss at the time as you rightly said some travel agents used to transfer some of the holiday cost to the travel insurance to reduce the overall cost by avoiding vat. The non travel agent sales channels eg brokers kicked up a fuss about it as they pointed out they were not party to the avoidance of vat but the government applied it to everyone.

As Lostinheaven has rightly pointed out it is a requirement that any Insurance Premium Tax is clearly shown on any paperwork

Lemonade_Pockets

One other thing to check, IIRC GAP insurance does not normally cover commerical vehicles. There are of course a million different policies out there but they wouldn't be the first Dealer to sell GAP insurance to people who don't qualify

gogsboy

Road fund licence

If your customer asks you to tax the vehicle they've bought from you, then you can treat the cost of the tax disc as a disbursement.



But if the selling price of the vehicle they buy includes the road tax, then this is part of a single supply of a vehicle.



You'll have to charge VAT on the total, including the cost of the road tax.

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Does the above not effectively say that RFL is not completely exempt from vat in all situations?