From 1 April 2017, the government is to restrict the availability of zero-rate VAT for the purchase of adapted motor vehicles for eligible disabled users, to one car every three years. This is in response to past 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.

In its policy paper outlining the new rules, HMRC says 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 elibility declaration forms mandatory. This online form clarifies exactly what information an individual needs to provide to support their claim to a zero rated supply (and is available on HMRC).

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.

LITRG chair Anthony Thomas described the proposals as ‘very much like a blunt instrument to prevent abuse’, and said the complexity of the rules may mean some disabled people incorrectly believe they do not qualify or are deterred from applying because of the threat of a penalty. The LITRG says HMRC should improve the administration of the existing relief by gathering and matching data from car dealers and licensing authorities, using modern technology and then taking compliance action. This could be largely automated to avoid putting much strain on HMRC’s staff resources.

Thomas said: ‘We particularly question why there will be an exception to the restrictions if a person’s condition changes, but not for life changes. It seems unduly harsh that a disabled person should be denied tax relief on the extra costs they incur when changing their motor vehicle, for instance in a simple situation such as their family having grown so that they require a larger vehicle. To deny the relief in circumstances such as a baby arriving would seem to be inequitable.’

 LITRG is also concerned at the lack of a right of appeal within the new provisions, thus making HMRC sole judge of whether a vehicle continues to be suitable relative to the disabled user’s condition. The group questions whether HMRC staff have the expertise to make such judgements. It is also concerning that the user will be required to disclose potentially intrusive personal information in order that HMRC can make that decision.

HMRC policy paper VAT: relief on adapted motor vehicles for disabled wheelchair users is here

Report by Pat Sweet