How to protect your automotive business as HMRC enquiries rise  

By Nick Lanigan, Tax Assistant Manager

The automotive sector is once again in HMRC's crosshairs as dealerships across the UK are being targeted, and subsequently investigated, for suspected tax evasion.

According to HMRC, the automotive sector underpaid £444.2 million in tax in 2021-22. This is a significant amount of money, and it is clear that HMRC is determined to recover it, potentially putting many dealerships at risk and creating undue stress and worry.

As a motor dealer, it's important to be aware of the risks and take steps to mitigate them. The automotive sector is receiving a mass of unwanted attention with the number of investigation notifications being served but it is important to co-operate as the penalties for non-compliance can be severe.

The pandemic saw HMRC’s forces redeployed to investigate abuses and errors on things like, furlough payments and other Covid support schemes. During this time, we saw a noticeable absence of investigations raised on VAT, PAYE and Corporate Tax matters. With these schemes no longer active, we have seen HMRC raise several investigations into clients in the past few months.

What can trigger an HMRC enquiry?

It is important to remember during a resurgence of HMRC enquiries that the mere act of selling cars puts you on HMRC’s radar and that it does not necessarily mean you have been doing anything untoward. Quite simply, cars are expensive and subject to complex rules for businesses buying and selling them. The provision of fuel and company cars creates an additional front for HMRC to explore for potential errors. 

There are also some exceptional activities that create a risk of drawing HMRC’s attention, which include transition to a new DMS, property transactions, business acquisitions and VAT returns with large repayment claims.

6 steps to take to help mitigate the impact of an HMRC enquiry

1. Keep good records. This is essential for any business, but it's especially important for the automotive sector. HMRC will want to see detailed records of all your transactions, so make sure you have them in order.
2. Get a VAT health check. An internal audit can help you identify any potential areas of non-compliance with VAT regulations. This is a good way to get ahead of HMRC and avoid a surprise investigation.
3. Be aware of the latest tax rules and regulations. HMRC is constantly changing the rules, so it's important to stay up-to-date. You can find this information on the HMRC website or by subscribing to a tax newsletter.
4. Use a reputable Dealer Management System (DMS). A good DMS will help you keep track of your records and ensure that you're compliant with the latest regulations.
5. Seek professional advice. An experienced professional can help identify any potential areas of risk and ensure that you're compliant with the law.
6. If you've already been contacted by HMRC, it's important to cooperate with the investigation. Don't try to hide anything, as this will only make things worse. Be honest and transparent, and you'll be more likely to come to a satisfactory resolution.

If, over the last few years HMRC has not visited your dealership, it is more likely to happen now. We have recently assisted a client with their first HMRC enquiry after a decade without any attention. There had been no unusual activity or transactions to merit the visit and when the visit occurred it was blissfully uneventful, however, this was because we were on hand to deal with HMRC and challenge anything that we felt was not part of their original investigation.

The automotive sector is a vital part of the UK economy, but it's also a target for HMRC. By following the tips listed above, we can help you protect your business from tax investigations and penalties. We can help deal with HMRC saving you time, cost, worry and stress, giving you peace of mind.