HMRC are sending letters to some motor retailers that they believe are at risk from ‘Bumping’. Bumping is where there is a discrepancy between a vehicle sales invoice on the DMS system and the finance proposal one, which can lead to the underpayment of output VAT on the sale. Most retailers have been aware of the issue for many years and have processes in place to avoid it happening but sometimes the finance house system can make this difficult.
The HMRC began this letter by identifying the increasing risk of an error in the VAT restores of motor dealerships, then pinpointed the issue to differences between commercial and accounting practices in the automotive industry. Following this, the HMRC confirmed that it is very rare for businesses to be oblivious to the issue, as a fault of internal control dependence, debunking any theories around it.
In a more detailed description of the issue, the HMRC letter said “This risk can be caused when the Dealer Management System and the Vehicle Finance Proposal System are standalone. If different transaction values are entered anywhere in the calculation and these two systems are not reconciled, this will lead to an incorrect VAT calculation and the output tax for the Company being understated.”
To help motor dealerships, the HMRC provided the following steps to identify any accounting errors:
- View the short educational recorded webinar that we have designed to help you to identify if the risk exists in your business and if this could lead to understated VAT liability.
- If, after viewing the webinar, you identify errors please use the Error Correction Notices are submitted to email@example.com . VAT Notice 700/45 explains how to correct VAT errors.
The HMRC concluded the letter offering their assistance on any questions, saying “please email us at firstname.lastname@example.org or call us on 03000 523040 using the reference “Auto LB”, our helpline is available from 8am to 4pm Monday to Friday”.
For further support on the subject, including live and recorded webinars, go to GOV.UK.