Agent arrangement

VAT liability of recharges for MoT fees

The taxpayer was a car repair and service business but was not authorised to carry out MoT tests. It subcontracted these to approved test centres paying between £40 and £54.85 a test. It charged customers a standard fee of £49.95 for tests so lost money on some of the deals.

The company did not itemise the test fees as a separate entry on its sales invoices. So HMRC assessed output tax on the full fee on the basis that the invoices did not specify the MoT charge and did not meet the conditions of a disbursement as stated in VAT Notice 700.

The taxpayer said customers knew that the business was acting as agent for MoT testing purposes. Therefore only the element exceeding the third party’s charge should be subject to VAT.

The First-tier Tribunal agreed with the taxpayer. The judge said every...