From 1 April 2017, HMRC will put restrictions in place to limit the availability of “VAT-free” adapted motor vehicles for eligible disabled people. Whilst this is perhaps a niche market, it could prove costly to dealerships that don’t take into account the new rules.

These restrictions have been a long time coming, as it follows a sector wide consultation carried out in 2014, and what HMRC views as being abuse of the relief. It was found that some people were purchasing numerous adapted vehicles in a single year, removing the adaptations and then selling the cars on for a profit. Whilst the original intention was to restrict sales of these vehicles to one car every three years per eligible person, the most recent guidance from HMRC confirms that the relevant VAT legislation doesn’t impose any specific limit on the number of vehicles that can be supplied to the same disabled customer. This may still change before 1 April 2017 however, and regardless, HMRC will expect the supplier to question eligible purchasers of these vehicles where frequent purchases are being made, including where you are aware of these going through other dealerships. Additional records will need to be kept of such discussions, as well as any supporting documentation or certificates obtained to support zero-rating of the sale of an adapted car. HMRC may issue penalties to dealerships that knowingly accept false declarations from disabled persons, or don’t confirm the reasons behind multiple VAT free vehicle purchases.

The Low Incomes Tax Reform Group has recently published a press release over its concerns regarding the restrictions, however its proposed solution is to increase data produced by the dealerships, so if taken forward could increase the compliance required of the dealership by HMRC.

Ultimately, it will be the dealership that HMRC will assess for any VAT they view as being lost due to abuse of the scheme, so it is in your interest to ensure the correct practices are in place.

Jennifer Lockhart
0141 886 6644


The information in this blog should not be regarded as financial advice.  This is based on our understanding in February 2017.

Image: Irina Borsuchenko/Shutterstock, Inc.