The government may have revealed it has no plans to introduce a scrappage scheme, but there is a suggestion a VAT cut is on the table to boot the industry.
This would stimulate car sales as well as the wider economy – but if one arrives later this year are you ready to make the changes needed?
The last cut in VAT was in 2008 and it caused major headaches for businesses as it was brought in quickly to immediately kickstart consumer spending during the recession.
In light of that, and thoughts that a similar cut is imminent, chartered accountancy firm MHA McIntyre Hudson has published a check-list for businesses so they can be better prepared this time around.
In the guide, the company says one significant simplification which will help car dealers if the VAT rate is cut is the treatment of deposits taken before a rate change.
MHA says car dealers can choose to use the lower rate if the sale takes place after the change.
Steve Freeman, partner & national head of motor at MHA McIntyre Hudson, said: ‘This option to use the basic tax point is going to be really valuable and important, because it will enable deposits to be taken in the knowledge that the new VAT rate will apply to the whole supply as long as the car is delivered after the rate reduction.’
Can you do this in-house and set up new tax codes or do you need a software provider upgrade? Contact them now and get project management time booked in.
Prepare in-house invoice templates so that changes can be made to allow a new VAT rate to be charged. This can take up more time than is expected and internal resources will be needed to implement this.
Book marketing campaigns to co-incide with VAT rate cut
Do you have post Coronavirus campaigns in the pipeline? Then bear this potential change in mind.
If your business enters into finance agreements, where VAT on monthly payments is set out in advance, you will need to take action to deal with payments due within the VAT rate change period.
For price tags already on items – stickers are a quick fix to match the item or a VAT discount can be offered at the point of sale at the till.
Payments on account
The reduced rate of VAT may take you under the POA threshold of £2.3m or reduce the amount of the payments on account that need to be made. In either case, it is necessary to write to HMRC to request either removal from POA or a reduction in POA payments.
If you are collecting less VAT from your customers as a result of a reduction in the VAT rate, this could potentially have an adverse cash flow impact for your business particularly where you need to fund VAT payments relating to periods prior to the reduced rate applying. It is important to model the cash flow position to allow you to plan accordingly.
Typically the government introduces measures that come into play when a temporary VAT rate reduction comes to an end. These are generally aimed at preventing artificial arrangements that create a tax point arising while the reduced rate is in place where the supply is made after the rate reduction ends. Keep yourself informed or any such measures to assess the impact that these could have based on your normal business model and trading patterns.
Plan stock levels and delivery times well in advance of any announced end to a temporary VAT rate cut.
- Rate your manufacturer and favourite suppliers in Car Dealer Power – it takes a few minutes to have your say here
- Join our breaking news WhatsApp group. Broadcast only, no chit chat, and headlines to your phone. Send us a message and ask to join here.
- Download the latest digital edition of Car Dealer Magazine Issue 148 for free here.