VAT: relief on adapted motor vehicles for disabled wheelchair users
Published 5 December 2016
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Who is likely to be affected
Businesses involved in the sale of motor vehicles that have been substantially and permanently adapted for disabled wheelchair users; purchasers of such vehicles that qualify for the relief and charities purchasing on behalf of eligible customers and groups representing motor dealers or disabled people.
General description of the measure
This measure introduces primary legislation that will end abuse of the VAT relief on substantially and permanently adapted motor vehicles for disabled wheelchair users.
It will specify a limit on the number of vehicles within a specified period of time that an individual can purchase under this relief and require the electronic or written submission of the eligibility declaration form published on GOV.UK. Motor dealers selling adapted motor vehicles under this relief will also be required to provide information regarding those sales to HM Revenue and Customs (HMRC) within a specified time frame.
Individuals in breach of these new requirements may be denied the benefit of the zero rate or may be subject to a section 62 Value Added Tax Act (VATA) 1994 penalty if the declaration they make is incorrect.
Policy objective
The government wants to continue supporting disabled wheelchair users in purchasing vehicles that have been substantially and permanently adapted to meet the needs of their disability.
However, there has been abuse of this relief, with some people purchasing numerous adapted vehicles in a single year, removing the adaptations and then selling the vehicles on for a profit. This is not what the relief was intended for.
The government is therefore amending legislation to reduce the exploitation of the scheme whilst ensuring those who are eligible can still benefit.
Background to the measure
It was announced at Autumn Statement 2012 that the government would carry out a review of this relief to ensure it was meeting its policy objectives. HMRC collected evidence and it became apparent that the relief was open to abuse.
Therefore a consultation was launched on 30 June 2014 to establish whether the relief should be reformed and, if so, how this could best be done. There was overwhelming support to reform the relief and the vast majority of the proposals put forward in the consultation were supported by a range of respondents, including disabled individuals, charities representing disabled individuals and motor dealers.
Following publication of the responses document in December 2014, in which the government set out its intentions for reform, HMRC has worked closely with external stakeholders to ensure the amendments to legislation do not negatively affect genuine beneficiaries of this relief.
Detailed proposal
Operative date
The measure will have effect on and after 1 April 2017.
Current law
The relevant legislation concerning the VAT relief for adapted motor vehicles is the Value Added Tax Act (VATA) 1994, Schedule 8, Group 12, Item No. 2(f) and 2A and Notes (5) and (5L).
Proposed revisions
The amendments are to Group 12, Schedule 8 of VATA. They substitute a new Item 2A, insert a new Item 2B, omit Note (5L) insert new Notes (5M) to (5U).
There will be a limit on the number of vehicles that can be purchased under this relief in a set period of time. An eligible individual will be able to purchase one vehicle every three years. There are some instances when this limit can be exceeded, so if an individual’s car is written off or stolen or if the vehicle has ceased to be suitable for the disabled person’s use because of changes in the person’s condition. These exceptions to the limit will be covered in primary legislation.
The government is also making the use of eligibility declaration forms which are available on GOV.UK mandatory. This form clarifies exactly what information an individual needs to provide to support their claim to a zero rated supply.
Motor dealers are also required to send information regarding these zero-rated sales to HMRC. The information required will be specified by a public notice, HMRC will use this information to monitor the exemption to guard against abuse and fraud.
The section 62 penalty will apply to a person who gives an incorrect eligibility declaration to the supplier of a vehicle. The relevant penalty is equivalent to the amount of VAT chargeable on a standard-rated supply of the vehicle. In severe cases of abuse, where fraudulent intent can be established, the individual can be prosecuted in a criminal court.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 |
|---|---|---|---|---|---|
| - | +20 | +15 | +15 | +15 | +15 |
These figures are set out in Table 2.1 of Autumn Statement 2016 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2016.
Economic impact
This measure is not expected to have any significant macroeconomic impact. The costing also accounts for a behavioural response whereby some of those affected may find alternative routes of avoidance.
Impact on individuals, households and families
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
Reform of the relief is aimed at tackling fraudulent use of the current scheme but it will impact disabled wheelchair users who wish to purchase more than one adapted motor vehicle over a three year period. The change builds in legal provisions allowing exceptions to this limit, for example if the medical needs of the wheelchair user change.
There may be a small minority of wheelchair users who wish to change their vehicle on a more regular basis for reasons not covered by the exceptions allowing an individual to purchase more than one vehicle every three years. We expect that this will rarely be the case.
Impact on business including civil society organisations
Changes to the scheme will affect around 6,000 car dealers that sell adapted motor vehicles. They will incur negligible one-off costs familiarising themselves with the new rules and negligible on-going costs from sending declarations to HMRC and going through their records to check if individuals have purchased cars from them in the past 3 years. Dealers are estimated to sell a very small number of adapted motor vehicles on average each year so we expect these compliance costs will be negligible.
Operational impact (£m) (HMRC or other)
Overall this change will be resource neutral for HMRC.
Reform of the relief will improve compliance and make it easier to police the scheme which will provide a small cost saving for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review using information on the mandatory eligibility declaration forms sent to HMRC by motor dealers. If the information sent in by motor dealers indicates that the relief is still being abused then there may be a case for additional reforms.
Further advice
If you have any questions about this change please contact Christopher Maudsley on Telephone: 03000 518538 or email: christopher.maudsley@hmrc.gsi.gov.uk.