Manufacturer and Dealer deposit contributions
This section sets out the VAT accounting treatment covering promotions where payments are said to be made by motor manufacturers or motor dealers on behalf of the end customers to finance companies. These are often but not exclusively referred to as manufacturer deposit contributions (MDC) or dealer deposit contributions (DDC) in the motor retail trade.
Manufacturer Deposit Contributions
Manufacturer Deposit Contributions (MDC) which are promotions where the manufacturer or importer of the vehicle makes a contribution to reduce the amount that the customer has to pay for the vehicle.
The contribution will usually be paid directly from the manufacturer or importer to the finance company after the customer has bought the vehicle and entered into the finance agreement. The payment is normally a contribution towards the deposit and does not alter the amount of finance agreed. Alternatively the payment may be made direct to the customer.
In these cases the the Manufacturer / Importer can make adjustments to the VAT they have accounted for under Regulation 38ZA of the VAT Regulations as set out in VAT information sheet 03/14: treatment of refunds made by manufacturers.
Dealer Deposit Contributions
Dealer Deposit Contributions are said to be a financial contribution by the dealer towards the deposit required from the customer by the finance company. Under a DDC promotion the dealer is said to contribute (say) £2000 towards the deposit. The effect being that the customer only has to pay £26,000 for the vehicle with a headline price of £28,000.
Normally, when a vehicle is sold on finance the purchase price is agreed between the customer and the dealer and the dealer completes all the documentation on behalf of the finance company. There is a sale by the dealer to the finance company and an immediate onward sale by the finance company to the customer.
There is no payment of the DDC by the dealer as such, the contribution is simply off-set against the payment by the finance company to the dealer.
Some dealers and finance companies have accounted for VAT based on the headline price (£28,000) with the DDC then deducted from the payment due. By deducting the DDC after the VAT has been calculated and by bearing the burden of the DDC dealers were accounting for more VAT than the customer pays. Some dealers sought to correct this by making an adjustment to their VAT account based on VAT Regulation 38ZA.
HMRC views DDCs as a discount on the headline price charged by the dealer. The DDC is shown on the finance and sales documentation and is agreed by all the parties to the transactions before they take place. There is no retrospective adjustment to the amount the customer will pay, or the amount the finance company will pay the dealer. VAT is therefore due on the discounted amount actually charged to the finance company and the customer.
Revenue and Customs Brief 07/2018 provided guidance on how dealers should correct any errors they have made in accounting for DDCs.