Car scrappage scheme

HMRC have published Revenue and Customs Brief 31/09 giving more information about the tax implications of the temporary vehicle scrappage scheme. 

Manufacturers

Manufacturers participating in the scheme will be providing a £1 000 subsidy to the final consumer (over and above any other subsidy or discount they might provide) even though there is no direct contractual relationship with the customer.

The VAT on the manufacturer’s contribution should be treated as a discount to the output tax paid to HMRC on the sale of the car.

Thus the output tax is reduced by the appropriate VAT amount which on a gross payment of £1 000 and the current standard rate of VAT of 15% means £130.43. Any such adjustment should be made in the period in which it takes effect in the business records of the manufacturer.

The output tax must not be reduced...