Car dealer deposit contributions are a discount

HMRC has explained the treatment of dealer deposit contributions (DDCs) when motor dealers contribute towards the deposit payable to the finance company leaving the customer to pay a reduced amount. It considers these arrangements are a discount on the headline price charged by the dealer with VAT due on the discounted amount charged.

The HMRC brief on the clarification gives an example: ‘The headline price of a car is stated as £28 000 this is shown as being funded by £20 000 finance a deposit (including part exchange) of £6 000 from the customer and a DDC of £2 000. HMRC views the selling price from which VAT is due as £26 000 (£28 000 headline price less the £2 000 discount/contribution from the dealer).’

Businesses that have accounted for VAT on the headline price should correct the position either by making a claim for overpaid...