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HMRC internal manual

VAT Margin Schemes

Specific circumstances: Bumping


It is common practice in the motor trade to manipulate the value of part-exchange vehicles to satisfy the minimum deposit requirements of a finance company. This process is referred to as bumping.

Bumping involves the trader increasing the value of the car he is selling as well as increasing the allowance he would otherwise be prepared to make for a customer’s own vehicle taken in part exchange.

The higher values are the true values since it is those values that are applied to the transactions to enable the dealer to make the sale.

It is important to remember that there are two different and distinct transactions here:

  1. the sale of a car by the dealer to the finance house; and
  2. the sale of a car by the customer to the dealer.The finance house is not concerned with the value of the traded-in car.

A tribunal case concerning a motor dealer who had used this manipulation is detailed below.

Howletts (Autocare) Ltd (MAN/94/483) This appeal made by Howletts was against twelve assessments totalling £33,851.21. The assessments were made because Howletts, having raised tax invoices in respect of new cars it had sold to finance companies, purported to cancel those invoices by means of internal credit notes and replace them with informal revised invoices showing a much lower liability to VAT; for which lower liability it accounted to Customs and Excise.

Howletts claimed that the value of part-exchange vehicles used in its VAT and other accounting systems was shown as less than that shown on the original invoice because the lesser value included in those systems for the part-exchange car represented the true consideration for which Howletts had acquired that vehicle, and the market value of the replacement car.

The tribunal chairman decided that the taxable amount as determined by the Commissioners of Customs and Excise was everything which constituted the consideration obtained or to be obtained by Howletts from MCL (the finance company) and the individual customer in any given transaction. The appeal was dismissed.