I've spent hours today trawling through HMRC guidance / speaking to people at HMRC call centres and reading taxation magazines and I just can't get a definitive answer on this one. It can't be that uncommon so I don't know why I'm finding it so difficult!!
I have a client who is a second hand car dealer. They offer optional warranties to their customers. If the customer says yes, my client "buys in" a warranty which includes IPT but no VAT, and adds the price of it to their invoice, separate to the vehicle price. My client makes no mark-up on this, receives no commission, and if something goes wrong with the car my client says they would not get involved and the customer goes straight to the warranty company to sort out repairs etc (ie: the contract is between their customer and the warranty company).
My question is simply, what is the VAT treatment.
HMRC person on the phone tells me this would be treated as outside the scope as a disbursement.
HMRC actual guidance tells me conflicting information - that it would, according to Section 9.3.1 of Notice 718/1, be exempt from VAT (it seems to fit all the bullet points noted), but also according to Section 9.4 that it would be standard rated.
If it is exempt, does the company then become partially exempt? If it is standard rated, surely offering these is undesirable as there is no VAT to claim back on the purchase but must be added to the sale price?
I also found a seperate website which appears to offer legal advice to the motor trade, that has also has thrown in the possibility of this meaning our client is acting as an agent for an insurance company and so would have to register to account for ITP tax...?
Please help! All the answers I get from HMRC seem unreliable, I even requested an answer in writing and got the "treat as disbursement" reply. I could be wrong but something just doesn't seem right about this.
Out and about just now so quick response without further digging of my records. See section 9 of I think it's guide 718/1 (margin scheme vat) and ther is another one too-cannot recall but mentioned in the one above. That should give you the full answer.
If not pop an update on here and I will try to look at what ive got when I'm home tomoz. Or you could speak to Les Howard who is a bag expert (I have his details if you need them).
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
I am a noobie so by no means would I solely trust my answer but thought I would try and help. I have attached some guidance that I found I believe it was what Jo pointed out and you have found yourself.
My understanding would be if its a product offered by your client, that is only sold and the warranty is solely between the client and warranty company then it is exempt.
The selling price and for calculating the margin must not include the charge for the insurance. Hope that helps also attached the notice section.
-- Edited by Muzzy2kuk on Saturday 1st of April 2017 09:36:48 AM
Apologies Faye
I only half read your post before popping an answer on and hadnt realised you had seen the appropriate VAT guide I mentioned, although I was also mentioning it (in part) as I knew it referred to another VAT guide but I couldnt recall the number - its actually 701/36. Would suggest you also have a read of that to clear the mind (Ok yes - you can then end up gpoing round in circles if you dont break it down into manageable chunks).
My understanding, in your case - given its an insurance (rather than non-insurance) warranty - is that the your client is acting as agent, therefore no VAT needs to be added on the sales invoice and it is indeed an exempt supply. Care re your stockbook - sales value is sale price plus insurance sales price (base price, not IPT included) although the VAT margin is worked on just the actual vehicle sales price excl insurance.
I would still be tempted to suggest you speak to Les to get something maybe more formal for in the event of an inspection (he would look at the documentation to make sure you get his right as the devil is in the detail we cannot see!)
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
HMRC guidance is pretty unclear. I was actually involved in the 'original re-write' of this, and then they changed it! My version was much simpler!
So, your Client sells an insurance warranty (and make sure it IS insurance); he is therefore an agent for the insurance company. If he goes out of business, the customer is still covered. IPT applies, but is payable by the insurer, not the dealer.
The selling price of the warranty is excluded from the selling price for the margin scheme; but the warranty must be itemised on the invoice.
Notice 718/1, para 9.4 refers to a in-house warranty, which is not insurance. These are quite popular.
(Happy to talk to you directly.)
I also recommended lawdata (lawdata.co.uk) who are legal experts for motor trade; and they can assist more generally.
Hi Les
One I look after provides in house - so much easier in some ways. round and round in circles you can go with the HMRC stuff - wish they had published what you had done, but the cynic in me says they then wouldnt get as many fines out of folk!
I noticed last time you mentioned Lawdata that they seemed to have 'lost' the stockbooks from their list of stationery items.
Hope you are keeping well - dont see you on here so much these days.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
I am told that Lawdata have always sold stockbooks; its just they got missed from the website; should be corrected soon.
(Not in your area until June; meet for coffee?)
Thanks so much everyone for your input, it's made everything a bit clearer.
Interesting to read that you were involved in the re-write of the guidance, Les - I wish they had kept your simpler version! I get so frustrated with HMRC. How are we supposed to advise people on the right thing to do when they don't even understand it themselves.
I am told that Lawdata have always sold stockbooks; its just they got missed from the website; should be corrected soon. (Not in your area until June; meet for coffee?)
Hi Les
Thanks for the lawdata update.
Meet up for coffee would be great! Let me know nearer the time and PM me (or you may still have my email address/phone info).
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
