The automotive sector is facing HMRC scrutiny as dealerships across the UK are being investigated for suspected tax evasion.
The automotive sector underpaid £444.2m in tax in 2021-22, HMRC figures showed. This is a significant amount of money, and it is clear that HMRC is determined to recover it, potentially putting many dealerships at risk and creating undue stress and worry, warns accountancy firm Armstrong Watson.
‘As a motor dealer, it’s important to be aware of the risks and take steps to mitigate them. The automotive sector is receiving a mass of unwanted attention with the number of investigation notifications being served but it is important to co-operate as the penalties for non-compliance can be severe,’ said Nick Lanigan, tax assistant manager at Armstrong Watson.
‘The pandemic saw HMRC’s forces redeployed to investigate fraud and errors on furlough payments and other Covid support schemes. During this time, there was a noticeable absence of investigations raised on VAT, PAYE and corporation tax matters.
‘With these schemes no longer active, we have seen HMRC raise several investigations into clients in the past few months.’
What can trigger an HMRC enquiry?
‘It is important to remember during a resurgence of HMRC enquiries that the mere act of selling cars puts you on HMRC’s radar and that it does not necessarily mean you have been doing anything untoward,’ warns Lanigan.
‘Quite simply, cars are expensive and subject to complex rules for businesses buying and selling them. The provision of fuel and company cars creates an additional front for HMRC to explore for potential errors.’
There are also some exceptional activities that create a risk of drawing HMRC’s attention, which include transition to a new dealer management system, property transactions, business acquisitions and VAT returns with large repayment claims.
‘If you've already been contacted by HMRC, it's important to cooperate with the investigation. Don't try to hide anything, as this will only make things worse. Be honest and transparent, and you'll be more likely to come to a satisfactory resolution,’ said Lanigan.
‘If, over the last few years HMRC has not visited your dealership, it is more likely to happen now. We have recently assisted a client with their first HMRC enquiry after a decade without any attention.
‘There had been no unusual activity or transactions to merit the visit and when the visit occurred it was blissfully uneventful, however, this was because we were on hand to deal with HMRC and challenge anything that we felt was not part of their original investigation.’
Six steps to take to help mitigate the impact of an HMRC enquiry
Keep good records.
This is essential for any business, but it’s especially important for the automotive sector. HMRC will want to see detailed records of all your transactions, so make sure you have them in order.
Get a VAT health check.
An internal audit can help you identify any potential areas of non-compliance with VAT regulations. This is a good way to get ahead of HMRC and avoid a surprise investigation.
Be aware of the latest tax rules.
HMRC is constantly changing the rules, so it is important to stay up-to-date. This information is available on the HMRC website.
Use a reputable dealer management system (DMS).
A good DMS will help you keep track of your records and ensure that you are compliant with the latest regulations.
Seek professional advice.
An experienced professional can help identify any potential areas of risk and ensure compliance with the law.