F&I Management & Training

Chancellor Alistair Darling announced a 2.5 per cent cut in VAT to 15 per cent until the end of next year in his pre-Budget report yesterday and motor trade accountant Trevor Jones said this would have an immediate impact on car retailers.

Trevor Jones said by delaying sales until the introduction of the reduced rate, dealers could recover input VAT at 17.5 per cent but declare output VAT at 15 per cent "giving a small profit and cashflow advantage or alternatively the opportunity to pass this saving onto the customer."

Trevor Jones said dealers should postpone the sale of more expensive, high margin vehicles in particular as the tax cut on these would provide "a real profit and cashflow benefit".

However, the accountant warned margins could be squeezed by consumers expecting dealers to act upon the chancellor's request to retailers to pass on VAT savings immediately.

Paul Brown, tax director for Trevor Jones, said that although the VAT reduction would boost consumers' spending power, it was "unlikely the prospect of a cut of £425 in the price of a £20,000 new car" would be enough to tempt "hordes of buyers" back into showrooms.

Overall the motor industry reacted positively to the chancellor's moves to fend off the ravages of recession.

Paul Everitt, SMMT chief executive, said the pre-Budget report would lift consumer confidence and "kick-start responsible spending" but called for credit and finance to be freed up to allow businesses to take advantage of the changes.

Sue Robinson, director of the RMIF, said delaying the introduction of VED hikes to 2010 and reducing the planned increases would "reduce the burden on the motorist".

However, Robinson argued that Corporation Tax rises should have been scrapped rather than just delayed to benefit businesses in the long term.

DATED: 27.11.08

FEED: MT