Was your franchised dealership in business between April 1973 and 1997? Did it used to run demonstrators, courtesy cars or self-drive vehicles?
Then you could be eligible for a payout. It won’t cost you a penny to find out – and the sums you could claim back? Well, as we’ll show later, they’re truly eye-watering!
But you have to be quick. You only have until March 31, 2009, to claim. What is all this we’re on about? Cue Car Dealer’s friendly tax expert to explain… Baker Tilly’s Ross Bartholomew is the guru behind it.
An ex-VAT inspector himself, he’s specialised in cars for the past decade with the chartered accountancy and business advisory services firm: ‘Part of my job is to look for niche areas that can benefit various trade sectors.’ That’s just what he’s found here.
In the mid-1990s, HM Customs and Excise decided, overnight, that if any business thought they’d overpaid on VAT, then backclaims would only be considered going back for three years. Any more than that, tough. ‘This was wrong,’ says Bartholomew. ‘There should have been a six-month transitional period.’
Think demonstrators, with an element of private use, or courtesy cars. Say you brought one for £10,000. Sold it for £12,000. Your profit? Easy – £2k. Between 1973 and the mid 1990s, businesses were paying VAT on that £2k profit margin. But this, says Bartholomew, was wrong.
‘Businesses shouldn’t have paid any VAT,’ he explains. So, for over two decades, businesses were incorrectly paying Customs money they shouldn’t have – on most demonstrators, courtesy cars and self-drive models.
It gets better. Say the manufacturer was offering bonus incentives for demonstrators. That £2k profit margin could be boosted to £3k if the maker was feeling generous. Again, back in the day, VAT was accounted for on that full amount. Again wrong.
In short: ‘Pre-1997, dealers shouldn’t have paid any VAT on profits, nor on associated bonuses, for demonstrators. And, pre-September 1992, the same applied to courtesy and self-drive vehicles.’ Customs, however, didn’t fully clarify this to dealers until mid-1997. Which coincided with that contentious three-year limit!
As it was something that affected all businesses and not just those in the motor sector, the matter wasn’t taken lying down. An appeal on this was sought, and resolved by the European Court of Justice in 2002.
A ‘transitional’ period was reinstated, and most dealers were able to claim back all the VAT they’d overpaid: ‘By going back in an imaginary time capsule and reviewing their business affairs prior to 1997,’ says Bartholomew. Guess what, though. Customs got details of the law wrong again, even then. Long and short of it? The grace period was extended.
And, on March 30, 2009, it’s up. Once and for all. Yeah, yeah, you’re thinking. Why should I be interested in a few quid dating back years? Because, says Bartholomew, it’s not just a few quid we’re talking here.
‘It’s not unreasonable, for those holding a franchise from 1973 to 1996, to claim back £150,000.’ Splutter that tea. But don’t choke just yet. ‘As Customs got the law wrong, they also have to pay interest on that amount – and that could easily be an extra £180k.’ He explains to a choking Car Dealer writer.
Then he hits us with the hammer blow. ‘We still don’t think that’s good enough. Simple interest is not enough – we’re arguing that, if dealers had been able to use that money, they could have grown their business much more than simple interest would pay.’ He therefore wants compound interest.
And that could be worth up to £720,000 using the above example!
The grounds for contacting Bartholomew are plain. ‘Ask yourself if you could be eligible. I can soon see if we can get money back for you. And, even if you have made a claim, it’s still worth getting in touch, as developments since 2003 mean some elements which were previously reduced have now become repayable.’
Amazingly, you don’t need any records. You’re only required, by law, to keep them for six years, so Customs had to accept that people wouldn’t have them dating back to 1973. It’s therefore quite willing to use a formula of approximation, based on average prices, profits and margins.
So long as you were in business, and make a sensible, justifiable claim, that really is it. The business doesn’t even need to still be running in many cases, so long as it was back then.
‘And it doesn’t give Customs carte blanche to revisit old records,’ he says. ‘It’s a one-way ticket – only the taxpayer can revisit.’
To do all this, though, you need a highly specialised tax advisor. That’s where Bartholomew comes in. ‘There are only a handful of leading practitioners in the country with the specific skills and knowledge to do this. It can take some time before Customs can be persuaded to pay claims – but I will only bill on what you can get back and only when you have received it. Believe me, there really is no downside.’
It is an incredibly tantalising prospect, that
Bartholomew says ‘hundreds of dealers could still be eligible for.’ Hundreds, he says! Could you be one of them? If so, there could be 720,000 good reasons to give him a call on (01284) 763311…
by Richard Aucock