VAT Downside of Increased Financed Income
23/03/2010
January results recently published by the Finance and Leasing Association have revealed an increase in consumer new vehicle finance of 23% compared to the same time last year. The additional finance commission earned by dealers is obviously a welcome source of income, but many forget that there can sometimes be a detrimental knock on impact on input VAT recovery within their business.
I'm talking here about the effect of the VAT partial exemption rules which link input VAT recovery on overheads, for example premises costs, to the proportion of VATable income in the overall revenue your business receives. A substantial increase in VAT exempt income, such as finance commission, may reduce your capacity to reclaim the VAT on these overheads and therefore create an additional cost for your business.
Many dealers who have not been troubled by partial exemption in the past are now finding that their efforts to increase finance income are being rewarded with restrictions on input VAT claims however steps can be taken to minimise this.
If you have any concerns regarding how the partial exemption rules affect your business or require assistance with ascertaining your input VAT recovery position please contact Michelle Malone.