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Car ‘scrappage’ scheme

The Government’s new temporary scheme introduced on 18 May 2009, to boost the flagging new car market has brought with it a number of potential VAT issues for manufacturers, dealers and customers alike.

As the amount is funded in two ways, half from the manufacturer and half from the Government, there is scope for VAT accounting errors to occur, particularly as many car dealers are using this scheme in conjunction with other promotional schemes.

HMRC’s Business Brief 31/09 sets out the correct VAT treatment of the £2,000 subsidy.

If you buy a new car or van under this scheme and are entitled to reclaim the VAT on the purchase, you will need to adjust the VAT reclaimed to reflect the manufacturers’ discount.

Further information regarding this scheme can be found on HMRC’s website.

Jane Stacey is a VATadviser and a Senior Manager at Mercer & Hole. The views given in this blog are personal to the author.



Date: 15th July, 2009
Author: Jane Stacey


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