A new Revenue and Customs Brief 7/18 has been published by HMRC concerning their policy on the VAT accounting treatment of promotions, where payments are said to be made by motor dealers to finance companies on behalf of the end customer. These are usually known as dealer deposit contributions (DDC) in the motor retail trade and have been the subject of different VAT accounting treatments by motor dealers.

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 these take place. There is no retrospective adjustment to the amount the customer will pay, nor 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. Any VAT that has been miscalculated must be corrected. The dealer must either make a section 80 claim for overpaid output tax or adjust their VAT returns following the normal error correction process explained in VAT notice 700/45.

Finance houses do not have to make any corrective action. They can make a section 80 claim for overpaid output tax but must offset the input tax they claimed on the invoices from the dealer. There is therefore nil net tax to adjust.

This HMRC brief is not concerned with manufacturer deposit contributions (MDC), which are promotions where the manufacturer or importer of the vehicle make a contribution to reduce the amount that the customer has to pay for the vehicle.