VAT Alert: Update on Revenue investigation of car dealers – Industry investigation or cull?

Tuesday, November 10, 2015

by Nick Ryan

Following on from the article in the last issue 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. 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 are being targeted. Initially the target areas were dealers in the North West but this has now spread to a national drive.
Revenue’s approach is based on one document, the UK V5 vehicle registration document. This is supported by information provided under the VAT Information exchange System (VIES).
Revenue are driving the investigation either by Revenue audit or, in most cases, a Revenue enquiry letter. The officers have a list of the vehicles they are interested in. The assessment for VAT is generally understood by the officer prior to the visit. Officers are being instructed by Revenue head office to issue assessments BUT to look to agree a settlement based on one year. Overall, Revenue officers are openly confirming this investigation is likely to close your business.
Initially my thoughts were that the draconian approach was a bullying tactic but now, having met with a number of dealers, my view is that this is more like an instigated cull. From the cases I am aware of the assessments start at circa €40,000 but the majority are closer to a six figure amount or higher. In all cases these assessment will likely force the closure of the business.
The basis for the assessment is, in our view, insufficient to support an assessment. Revenue are challenging the use of the margin scheme by UK dealers and auction houses for sales of specific vehicles, notably those which may have been purchased by finance houses, lease hire companies and other businesses.
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.
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. If this is the case then is this an Irish tax matter?
The VAT Practice is currently in discussion with UK HMRC on this matter in determining a number of issues based on the use of the V5 and the process in determining a margin scheme car.
So what can be done?
Firstly, for those dealers already under Revenue investigation, we recommend they seek specialist advice in order to review their case and establish whether Revenue’s stance can be challenged. For dealers not under investigation then we recommend a proactive approach be taken in order to determine whether the dealer has sufficient evidence to support the VAT treatment applied to purchases of cars from the UK.
As stated, this type of Revenue investigation requires UK VAT expertise. With over 20 years experience in practising in UK VAT, from HMRC to working within the big 4,which included expertise gained from advising on VAT motor industry issues, we believe The VAT Practice is the dealers best option in assisting them in resolving any Revenue investigation successfully .
To conclude, The VAT Practice does not believe that this is a matter that is to be resolved just under Irish VAT legislation. We also believe that Revenue’s approach is flawed and can be successfully challenged.
For assistance in managing a Revenue investigation or to discuss a particular case then please contact Nicholas Ryan at advice@thevatpractice.ie or 0238838181.

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