The action is being led by Trevor Jones Chartered Accountants, the specialist dealership accountancy firm, and McGrigors, the high profile corporate lawyer. They claim a successful outcome could see dealers receiving up to four times the interest they have already been repaid.

Trevor Jones said it currently has more than 60 dealers signed up to a formal Group Litigation Order which is recognised under court procedure rules and is the equivalent of a US-style class action. The company hopes to attract more than 100 dealers in a bid to make a successful group, or GLO, claim under European law for compound interest on VAT wrongly charged and later repaid by HMRC.

“We're talking about compound interest repayments ranging from hundreds of thousands of pounds to millions of pounds. "This is going to be worth a lot of money to the trade at a time when business is not great,” said Trevor Jones partner Mike Jones. “Each of the participants in the GLO has received a large repayment of VAT, which HMRC had erroneously required dealers to pay on the sale of demonstrator cars and the receipt of back-end volume bonuses from manufacturers,” said Jones.