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HMRC internal manual

VAT Margin Schemes

From
HM Revenue & Customs
Updated
, see all updates

Second-hand vehicles: Road fund licences and second-hand cars

The VAT treatment of a road fund licence (RFL) with a car will depend on the nature of what was agreed to be supplied.

  1. Has the customer agreed to buy a taxed car (a single supply)?
  2. Has the customer agreed to buy the car and asked the dealer to obtain the road fund licence on his behalf (the road fund licence then being supplied separately and capable of being treated as a disbursement subject to the normal conditions)?

In practice it is very difficult to ascertain the true nature of the agreement without having been a party to it.

When is a transaction a single supply or disbursement?

In the case of D.E. Siviter (Motors) Ltd (MAN/88/458) the tribunal accepted that a road fund licence (RFL) obtained following the negotiation stage of the transaction was purchased by the dealer on behalf of the customer, and was therefore not part of a single supply of a taxed car. Whilst this case was decided on its facts, it does provide an indication of how tribunals are likely to treat this type of transaction. In the absence of any express agreement, the approach taken by the Tribunal should be followed. In essence, this will mean that where the RFL is obtained after the negotiation for the sale of the car, you must look at whether the conditions necessary for treatment as a disbursement have been met.

Full details of the VAT treatment of disbursements can be found in Notice 700.

If the conditions for treatment as a disbursement have been met, this element of the sale does not form part of the margin for the purposes of the second-hand margin scheme. Where the conditions necessary for treatment as a disbursement have not been met, the car and the RFL are treated as a single supply, with the total value being subject to the margin.

Where a car that carries a RFL prior to a deal being struck is sold, this should be treated as a single supply of a taxed car: the full price will therefore be subject to the margin.

Further guidance on conditions for disbursement

If you require further guidance on whether the supply of a RFL meets the conditions necessary for treatment as a disbursement or for questions on single / multiple supply you should refer to the Supply policy team.