VTAXPER48000 - Issues to consider: identifying disbursements in particular areas and trades: MOT tests

The fee charged by an approved test centre for carrying out an MOT test has always been seen as outside the scope of VAT. However, a garage which is not approved as a test centre may arrange for a vehicle to be tested elsewhere as part of its service to the vehicle’s owner. In these circumstances, the unapproved garage will usually be classed as an agent and the treatment of the MOT test fee is based on normal disbursement principles. With effect from 1 November 1996:

• the charge for an MOT test provided direct by a test centre to its customers is outside the scope of VAT, provided it does not exceed the statutory maximum;
• any discount given by a test centre to an unapproved garage should be treated as a normal trade discount and not as consideration for a taxable supply by the unapproved garage to the test centre;
• the unapproved garage may treat the amount that it pays to the test centre for the MOT (assuming, of course, that all the other conditions set out in VTAXPER39000 are met);
• any amount charged by an unapproved garage to its customer over and above the amount charged by the test centre is consideration for its own service of arranging the test as agent of the customer and is taxable at the standard rate;
• if the unapproved garage chooses not to treat the exact amount charged by the test centre as a disbursement, or otherwise does not satisfy all the conditions set out in VTAXPER39000, it must account for VAT on the full invoiced amount.

This policy is supported by both the Society of Motor Manufacturers and Traders and the Retail Motor Industry Federation. 

In January 1999, it was upheld by the VAT tribunal in the case of M A Ward trading as Acorn Garage (MAN/98/507Y). However, in the latter, the law was not argued in any detail.

For operational reasons, an approved MOT test centre may need to subcontract the test to another approved MOT test centre. Reasons may include staff shortage, equipment failure etc. Where this happens, the supply of the MOT to the customer will remain outside the scope of VAT, provided it does not exceed the statutory maximum, regardless of any discount that may be given by the subcontracted test centre. This is because the first test centre is still making a supply of an MOT test (the charge for which is outside the scope of VAT) whether from its in-house resources or not.