What is the VAT treatment of a recharge of an MOT?

VAT Question

One of my clients runs a car repair centre that is not an authorised MOT testing station but does offer MOTs to his customers. If a customer wants an MOT, he takes their vehicle to a local authorised MOT testing station to get it tested, doing any repairs and maintenance necessary to get the vehicle through the MOT, and then recharges his customer for his services, including the MOT. What is the VAT treatment of the MOT recharge?

VAT Answer

Obviously, your client’s charges for their vehicle repairs etc is subject to VAT at the standard rate.

However, in regard to your client’s charge to the customer for the MOT, the VAT treatment of the charge depends upon what he charges his customer for the MOT.

If your client simply recharges the customer the exact amount the testing centre charged for the MOT, including any discount that your client may receive from the testing centre, then the recharge will be outside the scope of VAT and no VAT should be charged by/will be due from your client for the MOT. This is because the recharge is treated as a disbursement for VAT purposes.

Alternatively, if your client charges the customer more than the amount he was charged by the testing centre, then the charge represents 2 separate supplies with 2 separate VAT treatments:

• The part of the charge equivalent to the exact value charged to your client by the testing centre for the MOT remains outside the scope of VAT on the same basis as above; and
• The amount over and above the cost to your client is treated as a charge for your client acting as an agent in obtaining the MOT for the customer and is subject to VAT at the standard rate as it is.

HMRC provides slightly more detailed guidance on this in their online manual VTAXPER48000.

Tony Pocock – Vantage Fee Protect Tax Consultant