Concern at new restrictions on VAT relief for disabled people buying cars

A press release:

The Low Incomes Tax Reform Group (LITRG) is concerned at a tax change which could increase the costs for disabled people of changing their motor vehicle and leave them unable to change to a more suitable vehicle.

From 1 April 2017, the Government will restrict the availability of zero-rate VAT for the purchase of adapted motor vehicles for eligible disabled users, to one car every three years. It says there has been abuse of this relief in the past, with some people purchasing numerous adapted vehicles in a single year, removing the adaptations and then selling the vehicles on for a profit. ¹

Instead of restricting the relief to tackle the tax abuse and, as a result, potentially raising the cost of motor vehicle ownership for some disabled people who genuinely need it, LITRG suggests HMRC should improve the administration of the existing relief by gathering and matching data from car dealers and licensing authorities, using modern technology and then taking compliance action. This could be largely automated to avoid putting much strain on HMRC’s staff resources.

Anthony Thomas, LITRG Chairman, said:

“We welcome the relaxations that are planned within the new rules but these do not go far enough to stop the lifestyle of genuine users of this important tax relief being adversely affected.

“We particularly question why there will be an exception to the restrictions if a person’s condition changes, but not for life changes. It seems unduly harsh that a disabled person should be denied tax relief on the extra costs they incur when changing their motor vehicle, for instance in a simple situation such as their family having grown so that they require a larger vehicle. To deny the relief in circumstances such as a baby arriving would seem to be inequitable.”

LITRG is also hugely concerned at the lack of a right of appeal within the new provisions, thus making HMRC sole judge of whether a vehicle continues to be suitable relative to the disabled user’s condition. The group questions whether HMRC staff have the expertise to make such judgements. It is also concerning that the user will be required to disclose potentially intrusive personal information in order that HMRC can make that judgement.

Anthony Thomas said:

“The proposals seem very much like a blunt instrument to prevent abuse, but regretfully may equally prevent genuine users from obtaining relief – either because they do not qualify, or because the rules are so complex that they think they do not qualify or perhaps even the threat of a penalty for getting it wrong puts them off.”