REVENUE HAS made a concession to allow car dealers to defer VAT payments due yesterday in light of the impact of the economic downturn on the industry.
Millions of euro in VAT payments were due prior to the concession, which will allow dealers to pay the debts in four instalments up to January 19th, 2010.
According to a Revenue document seen by The Irish Times: "The second-hand car market has declined significantly. . . creating difficulties for motor dealers selling used vehicles.
“The downturn has caused an increase in the number of pre-owned vehicles being sold for less than cost and, as a result, an increase in the clawback of residual VAT claimed. Following representations from the Society of the Irish Motor Industry [SIMI], Revenue has agreed on measures to assist dealers’ cash flow.”
This move means all residual VAT repayments for 2008 and the first six months of 2009 can be accounted for in four equal instalments in the VAT returns for the May-June 2009, July-August 2009, September-October 2009 and November-December 2009 periods.
It comes after confusion over plans to change the VAT system first announced in the Budget.
Lobbying by the motor industry resulted in changes to the current system being announced in the Budget. However, these were omitted from the Finance Bill at the behest of the industry when it was discovered the new plan would seriously impact on dealer working capital.
Under the current system, car dealers can reclaim the VAT value on a used car either purchased or traded in and pay it back when the car is sold. In reality, this rebate is used to offset other VAT payments on new cars, ultimately adding to the trading cash flow of the business.
The Budget plan would have introduced a margin-based system, but there were concerns among some that the withdrawal of the value of the VAT rebate on used cars purchased or traded in would have had a detrimental impact on working capital. The plans have therefore been shelved.
Some estimates suggest that up to €100 million would have been removed from the working capital of dealers if the new scheme had been introduced.
With new car sales to the end of April down by nearly 64 per cent compared with the same period in 2008, the motor industry is hopeful of further assistance from Government.
Alan Nolan, director general of SIMI, said: “The Minister has confirmed his commitment to bring forward some agreed proposals that will help the industry and to replace what was in the Budget statement.”