Guidance

Elida claims: guidance on claims for output tax declared or input tax adjusted

Published 27 October 2006

This guidance was withdrawn on 21 June 2018

The deadline for the claims has passed. Find out more about VAT repayments.

Detailed guidance on claims for output tax declared or input tax adjusted on retrospective bonuses where the bonus was in respect of a car on which input tax was not deductible. Elida Gibbs Ltd v C and E Commissioners (Commrs), Case C-317/94 (1996) STC 1387 (‘Elida case’).

1. Claims can be made in respect of retrospective bonuses on new cars purchased by dealers for use in their business from 1973 to the dates set out in Revenue and Customs Brief 07/08 and subject to section 121 of the Finance Act 2008, where UK legislation required dealers:

• to block the input tax on the car
• trigger a self supply when the vehicle was taken from new car stock

Demonstrator cars fell into this category until the UK law changed on 1 December 1999. Other cars, such as self-drive cars would have been treated similarly until 1992.

2. Claims for cars pre registered or sold as ‘delivery mileage only’ will not be eligible.

3. Claims can be made by businesses under the terms of Revenue and Customs Brief 07/08. Under section 121 businesses were given a statutory transitional period running until 31 March 2009 during which they could make claims for:

• output tax overdeclared in accounting periods ending before 4 December 1996 (section 121(1) of the Finance Act 2008)
• unclaimed input tax in respect of which the entitlement to claim deduction arose in accounting periods ending before 1 May 1997 (section 121(2)).

All claims made on or after 1 April 2009 are capped at 4 years or back to 1 April 2006, whichever is the shorter.

4. Repayment can only be made to the taxable person (that is, the VAT registration number) who made the overdeclaration. This means that where a franchised site was subject to a series of operators, a claim will have to be submitted for each of the VAT registrations for that site. This applies even where the VAT number has since been deregistered. Where the company has been struck off the register of companies at Companies House, dissolved or liquidated and no longer exists, unless that company is reinstated to the register, no claim can be made for overpayments made by that company.

5. Where the documentation of these payments followed the supply chain of the cars, HM Revenue and Customs (HMRC) policy was always to treat them as a discount on the price of the car. No claims should arise in such cases. In other cases, although HMRC clarified and published its policy in October 1987, the VAT liability applied by business and the documentation of the payments continued to vary and change even within the same franchise. Some manufacturers/franchises introduced ‘VAT efficient’ methods to ensure that the payments were seen as discounts and did not give rise to output tax liabilities in the dealerships.

6. However, where the documentation for the payments passed directly from the manufacturer to the dealer and did not follow the line of supply of the car, HMRC policy was that these payments ought to be treated as consideration for supplies of services from the dealer to the manufacturer on which the dealer should declare output tax. Where output tax was declared on these payments, claims may now be made, subject to the other information in this note.

7. The payments affected are demonstrator support or bonus payments. Claims in respect of other retrospective bonuses, provided VAT was accounted for on the bonus, can also be made to the extent that they were paid in respect of cars on which input tax was blocked. However, in many franchises, demonstrators counted towards, but did not themselves qualify, for a payment of any other type of bonus. Therefore, in order to make a claim for overpayments on these types of bonus, verification is needed that VAT was declared on these payments for all periods claimed, and that the demonstrators did ‘count and pay’ for all the payments now claimed. To calculate the amount of the claim, the VAT on the bonus payments must be apportioned so that only that which can properly be ascribed to cars described at 1 above is included in the claim.

8. Claims should take account of the franchise(s) held at the time the tax was declared. This is relevant because:

• only some franchises were required to account for VAT on the bonus payments (see 6 above)
• the VAT treatment of the bonus varied over time even within the same franchise
• the percentage of demonstrator bonus paid fluctuated
• some franchises may not have been required to block tax as no private use of the demonstrator car was allowed. Typically very high value vehicles
• some franchises would not pay demonstrator bonuses
• many franchises would not have operated courtesy cars in the 1970s, or at all
• the number of demonstrator cars at a retail site and a wholesale site would be different
• market shares have changed substantially between 1973 and 1996
• the total number of sites has reduced by a third since 1973
• some demonstrator cars may not have been eligible for the payment if they were disposed of earlier than set out in the manufacturers terms and conditions relating to the plan

Claims must also take account of changing prices and VAT rates.

9. Strict attention must be paid to the published Elida Gibbs table. It details those circumstances in which HMRC have established that a claim can be made under Elida. If there is no information on the table for the franchise operated over the period of the claim, then no claim should be repaid. Where a business has evidence to the contrary HMRC staff should be asked to forward it to the Motor Unit of Expertise for consideration.

10. It is possible that a business that did not meet the criteria of the Elida table, made overpayments by incorrectly treating the bonus payments. In such circumstances, the business is required to demonstrate that an overpayment was made. However, it should be noted that, in these circumstances, the error was that of the business and not HMRC. Statutory interest will therefore only be paid from the date the payment was incorrectly capped and not from the date the error occurred.

11. Some previous claims have been based on numbers of blocked cars taken from the Italian case guidance. This is not necessarily correct. The Italian claim is about blocked cars sold at a profit for VAT purposes, whereas Elida is about only those blocked cars that earned a bonus. Not every input tax blocked car qualified for bonus payment. Businesses must take this factor into account.

12. Level of bonus
Levels of demonstrator bonus vary between marques and, often model within a marque. They may have been paid as a £ value or expressed as a percentage of net list or net wholesale price. Where information is available for specific years it must be used, but any assumption that the levels remained static for earlier or later years may be unreliable. For years where information is not available HMRC will accept a range of 3% to 5% of net list price for years prior to 1993, and 5% to 7% after 1993 depending on the marque and information for years where information is available.

13. Abolition of car tax
The abolition of car tax on 12 November 1992 affected the way in which bonuses were paid to retailers. Prior to this date the tendency was for the manufacturer to pay a larger up front discount, and a smaller amount was paid as a back end bonus. Following the abolition of car tax, there was a shift towards the payment of a larger back end bonus and a smaller front end discount. This should, therefore, mean that Elida claims are lower pre 1992. In addition, the net list price would exclude both car tax and VAT before 1993, but only VAT thereafter. Claims should take this into account.

14. The Elida table has been prepared on the basis of information available within HMRC or by the motor trade bodies (Retail Motor Industry and Society of Motor Manufacturers and Traders). To use the table, for each franchise site for which you are submitting a claim, you should take the following steps:

• make a note of the franchise for which the claim is to be made and the dates between which the claim is to be made
• consult the table, look up the franchise to see between which dates a claim is possible
• where the franchise is not listed, or the dates are not shown, this is because no information on how the payments were made or whether they were shown with or without VAT is currently available
• to make a claim in these cases, it will be necessary to confirm that overdeclarations were made for the periods of the claim. The information needed will normally take the form of copy documents, copy of accounting information supplied on each campaign, letters or some form of evidence that demonstrates the validity of the claim under the guidance above
• HMRC has updated the chart as good evidence of the treatment of the transactions was received with earlier claims. By pooling information in this way, claims should be facilitated across the trade

15. Claims should be realistic and may be checked against historic information held by HMRC in local files

Questions

If you have any questions in respect of this note please contact the VAT Helpline on Telephone: 0300 200 3700.