Autumn statement tackles ‘exploitation’ of adapted vehicle VAT scheme

The government is to bring in new laws that will tackle the “exploitation” of a scheme that allows wheelchair-users to buy significantly-adapted vehicles without having to pay any VAT.

The new laws were announced in this week’s autumn statement document, but were not mentioned in the chancellor’s speech to MPs.

The Treasury expects to save £20 million through the new measures in 2017-18.

The VAT relief on the purchase price of an adapted vehicle –  when the price of a non-adapted car has to include 20 per cent VAT – means the buyer can make a substantial profit if they remove the adaptations and resell the vehicle.

An investigation by HM Revenue and Customs estimated that as much as £30 million of the £65 million annual cost of the VAT relief scheme was accounted for by people “exploiting” the system.

One individual who took advantage of it was found to have bought 70 Range Rovers, 20 Mercedes and five Porsches in just two years, while another bought 30 BMWs in a single day, according to the Treasury.

A Treasury spokeswoman said: “Individuals are using the scheme to buy extremely high-end cars with minor adaptations and are then reversing those adaptations and selling these cars on for a profit.”

She said she did not have further details of who was responsible for “ripping off the scheme”, but she added: “It’s clearly not disabled people.”

She said the people losing out from the changes would not be disabled people, but “the people exploiting the scheme”.

The measures to clamp down on abuse of the exemption, which is supposed to apply to vehicles that have been “substantially and permanently adapted” – through changes such as having hoists or lifts installed, or floors lowered – will mean wheelchair-users will only be able to buy a VAT-free car once every three years.

There will be exceptions, for example if someone needs to replace a car that has been written off in an accident, or if their needs have changed substantially.

Car dealers will also need to provide details of all of their zero-rated sales to HM Revenue and Customs.

The autumn statement announcement has taken disability organisations by surprise, as a consultation on the proposals ended in September 2014, following a mention in the 2014 budget.

A substantial majority (80 per cent) of those who took part in the 2014 consultation supported changes to the system to deal with abuse.

The government said two years ago that the scheme was “being targeted and abused by individuals and organisations that purchase vehicles at the zero rate of VAT in order to sell them on for profit”.

There were also concerns that dealers were adding “unnecessary and dangerous” adaptations in order to supply the vehicle at the zero rate of VAT, before being removed post-sale.

A spokeswoman for Disabled Motoring UK said the charity hoped the change would “safeguard the concession”, as continuing widespread abuse would have “put the exemption in jeopardy”.

She said: “It is quite clear there is some kind of abuse going on. I heard somebody was buying several Lamborghinis.

“They have reassured us that if somebody’s condition changes or they require another vehicle then that exemption will be provided.”

Declan O’Mahony, director of Motability, added: “Our position is the same as it was in 2014 when it was consulted on.

“We would welcome some common sense tightening to prevent any abuse of the relief, because the relief is important to disabled people.”