27 July 2017

MOTs fail their VAT test

Any garages that charge for MOTs are being urged to make sure they account for VAT in the correct way.

A garage recently found itself temporarily unable to carry out MOTs. Not wanting to lose business or let its customers down, it arranged for these MOTs to be performed by other garages. The garage charged a fixed fee for MOTs, regardless of the actual cost to it from the garages. This meant it made a small loss on some MOTs, and a small gain on others. 

While the garage charged VAT on any work it had to carry out, it didn’t charge VAT on the MOT fee. Instead, it treated this cost from the other garages as a disbursement. HMRC challenged this in court and assessed for VAT on the MOT charges too. However, HMRC lost. It was agreed that, as MOTs are statutory charges and the garage in question was not licensed to carry out MOTs, VAT should not be applied.

This VAT rule doesn’t just apply to garages. Disbursements can also cause VAT issues for other businesses, such as lawyers and property agents.

If you think you might be affected by this, please do not hesitate to contact us.

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