HM Revenue & Customs officers are currently paying close attention to second-hand car finance deals, according to accountancy firm Baker Tilly.
In particular the practice of bumping – which arises when a dealer accepts a second-hand car in part-exchange and then makes arrangements with the finance company to facilitate the sale of the new replacement car to the customer – has come under scrutiny.
In order to drive the sale through, some dealerships are inflating both the part-exchange value and the sales price of the replacement car by a similar amount so that the minimum deposit figure can be met without the need for a cash payment from the customer.
Stephen Duffety, head of Baker Tilly's National Motor Sector Group, said: “I have become aware of a number of VAT assessments raised in the past few months on bumping issues.
“It seems to me fairly clear that Customs are currently targeting motor dealers and that, in this instance, the practices involved clearly justify these assessments,” he said.