A. The treatment of the difference between the test fee paid to a MOT centre and the top-up or profit has caused disputes with HMRC. The VAT treatment can depend on how the garage copes with the charging-on of what arguably is in effect a disbursement.
The key aspect is whether the garage acts as an agent for the customer or is contracting in the MOT and supplying it on as principal.
If the garage is shown to act as an agent of the customer in arranging their MOT test then there can be a disbursement element, which is outside the scope of VAT, and a standard rated element.
In practice, if an unapproved garage shows the exact amount charged by the test centre separately on the invoice to the customer and meets all the conditions for disbursements, which are set out in Notice 700, para. 25.1.1, it may treat this element as a disbursement that is outside the scope of VAT. Meeting these conditions will entail informing the customer that the test will be carried out by a third party. However, if the unapproved garage chooses not to split out the invoice or in any other way does not satisfy all those conditions, the garage must account for VAT on the full invoiced amount.
Specific guidance on MOTs is covered in Notice 700, para 25.4.
Although not creating a precedent, a recent Tribunal case – Ellon Car Clinic has been more pragmatic. It took the view that customers knew that Ellon sent the car to an authorised garage and therefore Ellon acted as agent for the car owner in arranging the MOT. The invoice did not show the involvement of the authorised garage and did not split the charge to show the exact amount paid for the test on a customer’s behalf. However, the tribunal still held that the only taxable element of the supply in relation to the MOT tests was the element which exceeded the amount actually paid. In this case, as every customer knew that Ellon Car Clinic Ltd could not supply a MOT test and had to use another authorised garage for this, the FTT held that Ellon Car Clinic Ltd was acting as agent (not principal).
If you have a VAT query why not contact the VAT Advice Line on 0844 892 2470 to discuss the implications. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.
