Car dealers still under intense scrutiny for cross border purchases from the UK

Friday, March 11, 2016

by Nick Ryan

This investigation continues to make strides and, based on the reports we have received, continues to reap significant rewards for Revenue. The approach is the same, and it is important for dealers to understand the developments of this investigation and the need to address matters in order to avoid the strong possibility of losing their business.
Revenue’s focus is narrow, but clear. Their investigation focuses on motor dealers who purchased cars from UK dealers or UK auction houses between 2009 and 2014 and, where the sale was managed under the margin scheme. The gist of their evidence is based on one document, the UK V5 vehicle registration document and supported by information provided under the VAT Information exchange System (VIES). Following this initial exercise, Revenue has also identified other errors in VAT accounting and reporting for other types of vehicles purchased from the UK which are leading to significant assessments.
The aim appears to quickly identify an error in one year and look for a settlement of the VAT arising on the understanding that the investigation will not be extended to other years. In other words, it is like offering a much reduced custodial sentence for accepting guilt without conviction as opposed to proving the case which could result in a much longer and more severe sentence.
In my time with HMRC as a VAT control officer we were often preached by our seniors that to raise an assessment for the correction of an error then we had to provide the evidence to support the findings, just saying it was wrong was not good enough. Without sufficient evidence then the case could not be supported.
To date, my one leading question is “Where is the evidence?” Does a UK vehicle registration document or, an entry on an VIES declaration provide for sufficient evidence, if any, that VAT was reclaimed by the person who purchased the vehicle when new or, that there was an entitlement to deduct the VAT by that person? If the shoe was on the other foot, would Revenue accept that a transaction occurred which allowed for a deduction of VAT based on a document that was not an invoice?
If the motor vehicles did not qualify as a margin scheme car then should not the UK dealers be submitting sizeable claims for VAT incorrectly accounted for on the sale?
The Revenue decline to answer these questions and, for me, this is a disappointing situation as should a tax authority openly flaunt the procedures and legislation in place for the sake of collecting additional revenue?
The question arises as to whether this is an Irish VAT matter. Taking the number of vehicle sales being challenged by Revenue which suggest, under Revenue’s interpretation, that the majority of purchases made do not qualify as margin scheme cars, then this looks tantamount to a fraudulent exercise conducted by a number of UK dealers and auction houses. Why has Revenue not referred its findings to HMRC on this basis? HMRC guidelines provide for no definition of fraud though determine that fraud and fraudulent conduct includes, in its various forms, falsification with an intention to deceive. Given the number of vehicles identified it is questionable, if this is not fraud, that UK dealers and auction houses have got this so incredibly wrong.
The VAT Practice, following our submission to HMRC, has received a positive response which support our view that Revenue’s approach is flawed. To this extent we are preparing a case, based on HMRC’s response to our submission, which we believe provides for a very strong counter argument in defending a dealer’s position and should provide for a positive result for dealers with assessment/settlements being quashed.
If you are acting for a motor dealer currently under investigation, or who has been investigated and where Revenue has issued a assessment, or a settlement has been agreed then please contact us as we believe we can provide your client with a strong argument to negate Revenue’s case.
For assistance in managing a Revenue investigation or, to discuss a particular case, then, please contact Nicholas Ryan at advice@thevatpractice.ie or, by telephone 023 8838181.

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