# VAT increase. Invoice date dependant or date cash received?



## newleaf (Jan 11, 2007)

I have posted this on "Ask a Trader", but I thought I should ask everyones views.
I have a new motorhome on order from Brownhills which is being delivered next March. They are now demanding payment in full by the end of December or be charged an extra 2.5% with the increase in vat.
My business understanding is that the rate of vat is dependant on the date of invoice and has nothing to do with the date payment is received, its all to do with the date of invoice.
I understand that using this vat argument is a good ploy to get sales by the end of the year, but surely demanding the money as well is a bit of a scam?
What are your views please?


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## locovan (Oct 17, 2007)

Surely its to benefit yourself that you only pay now so as to pay 17.5% VAT.

Bognor Mike can help here :lol: :lol:


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## newleaf (Jan 11, 2007)

That's just the point. Its all to do with invoice date. i.e invoice date 31st Decmber at 17.5% vat pay say 1st March is, as far as I am aware, acceptable normal business practice.


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## locovan (Oct 17, 2007)

But you will pay in by the 31st December and given a receipt. Job done.
If you wait until March you will have to pay the 20% Vat.


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## cabby (May 14, 2005)

Why dont you look on the revenue web site and get the correct answer.Personally I think you are wrong and say that VAT is due on date of payment.but then again I could be wrong. 8O 8O 

cabby


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## erneboy (Feb 8, 2007)

Just ring your local VAT office, they will not mind helping and will give exactly the correct answer. Keep a not of who you spoke to and when in case you need to refer the dealer to them, Alan.


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## cabby (May 14, 2005)

taken from the site recommended by me.

http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-increase.htm#3

VAT invoices raised or deposits received before 4 January 2011 for sales you make afterwardsIf you issue a VAT invoice or received prepayment before 4 January 2011 for goods or services which you provide on or after that date VAT will normally be due at the 17.5 per cent rate. In certain circumstances VAT is due at a rate of 17.5 per cent on the date of issue of the VAT invoice or receipt of payment before 4 January 2011 and a supplementary charge of 2.5 per cent then becomes due on the 4th Jan 2011

cabby


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## DTPCHEMICALS (Jul 24, 2006)

You cannot pay up front for something that does not exist
A vehicle does not exist until a registration number is issued.
Notes from my current vat return
" *If goods have been provided (or services completed) before 4 January 2011 you can choose to account for VAT at the old rate of 17.5%.*You don`t have to tell HMRC if you do this but you will need to issue a credit note to your customer if you have already issued a VAT invoice showing the new rate of VAT"
The date of completion is the tax point at which the vat is charged.

Dave p
EDIT just re read your post to ensure I read it correctly.
Brownhills ......cash up front ........forget it.
They will probably put your cash in a 4% interest account :lol: 
Manipulate the invoice to look like a 17.5% vat rate.
You can do that yourself

Dave suspicious p


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## newleaf (Jan 11, 2007)

Well there you have it.
All information says vat rate is dependant upon the date of invoice. Brownhills choose not to invoice until the payment is received, many others as well of course. I guess its there prerogative, it favours them by a long way, but it is not necessary.
A good company invoices upon receipt of order and payment is made when goods are ready to be delivered. Anything other than that is useing the system to generate bundles of cash to bolster there bank balances.


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## bognormike (May 10, 2005)

newleaf said:


> Well there you have it.
> All information says vat rate is dependant upon the date of invoice. Brownhills choose not to invoice until the payment is received, many others as well of course. I guess its there prerogative, it favours them by a long way, but it is not necessary.
> A good company invoices upon receipt of order and payment is made when goods are ready to be delivered. Anything other than that is useing the system to generate bundles of cash to bolster there bank balances.


the normal practice is to invoice on delivery, with the Tax point for VAt purposes as the same date (with any deposit being accounted for when paid). As Cabby's link shows (and I've quoted it before), in this special situation, the supplier CAN invoice for all the goods (whether they are in stock or not, DTP) with the customer paying in total before 4th JAnuary, and this creates a VAT tax point at the 17.5% rate. However, if it's not invoiced AND paid, you won't get the benefit, so to get the benefit of the lower rate, you've got to persuade Brownhills to invocie you in full before 4th JAnuary, AND hand over all the cash to them! :roll: Now if you consider that is a reasonable thing to do - ie trust them with your money for 2-3 months, then good luck to you :lol: 8)

here's the pdf file that comes from the revenue site

http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-rise-guidance.pdf#page=8

have a look at 2.6, and the example of the sale of a computer - same principal with a motorhome!


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## DTPCHEMICALS (Jul 24, 2006)

Mike I am not going to do a HF :lol: 
Have you read section 11.

My local office did supply me with the information re a motor vehicle does not exist until it is registered and that is the tax point date.

Dave p


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## bognormike (May 10, 2005)

DTPCHEMICALS said:


> Mike I am not going to do a HF :lol:
> Have you read section 11.
> 
> My local office did supply me with the information re a motor vehicle does not exist until it is registered and that is the tax point date.
> ...


 :lol: :lol: who's HF? 8)

Ah, but the anti-avoidance section 11 is only applicable in those specific situations - the only ones that could be applicable is the £100,000 limit (it would have to be a pretty good one to be more than that!), and the six month rule.

interesting point about the registration date, though :?:I still wouldn't give them my money :roll:


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## cabby (May 14, 2005)

Well to summerise the situation then. :lol: :lol: 
there are two different points of view, which these days is not unusual.
I think the best way forward is to contact your local VAT office, explain the question and ask for written explanation, before the end of Dec please.Or write down what they quoted and get the persons name type it out and ask them to sign please.
Then if you you want to go and give Brownhills a large cheque go ahead. it is your choice.
simples yes.

cabby

ps. what are you buying.


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## JohnsCrossMotorHomes (Jul 21, 2007)

It has been common knowledge in the public domain that VAT would rise to 20% from January 4th 2011.

Order forms in the motor trade are normally quite detailed as to price and delivery dates.

Final prices are normally quoted as VAT inclusive at the date of signing, in our case any increase in Vat would either have been calculated in the fixed price or would have been absorbed by us at the date of invoicing if delivery was known to be after January 4th 2011

Peter


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## Dinks123 (Apr 20, 2010)

No doubt ....date of invoice. I work in the hospitalty indutstry. We take a booking in November, the deposit is paid then, the balance is ony paid in Feb. The sale took place when the booking was made, and deposit paid.


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## peribro (Sep 6, 2009)

I've not read the latest notes from HMC&E but I had the registration issue with the VAT change to 17.5% on January 1 this year. Delivery of my motorhome from the manufacturer got slightly delayed with the consequence that delivery from the dealer was rescheduled to the 22nd / 23rd December last year. I had no need of it over Christmas and felt that it would be preferable to have it as a 2010 registered van rather than a 2009 one when it comes to sell it. However I wanted the lower rate of VAT. I therefore asked the dealer to invoice it with 15% VAT on 22nd December with me paying in full on that day. Whilst taking legal ownership of the van on that day I said not to register it until the New Year at which time I would collect it. The dealer checked this with the local VAT people who said that it had to be registered prior to 1 January to get the lower VAT rate. I challenged this and the dealer went higher up the command chain in HMC&E (credit to him for doing this) and the central office of HMC&E agreed that the van did not need to be registered so long as it was physically with the dealer and the chassis number was known. I therefore got the lower rate of VAT and a 2010 registered van - and the van spent the whole of Christmas and New Year under cover in the dealer's workshop whilst there was snow and ice all around!


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## ICDSUN (Oct 10, 2006)

We have always used the date of supply as the tax point,we sell capital equipment running into 7-8 figures so VAT is always paid on the supply date not order date, we collect a deposit with VAT applied to that deposit amount.

If a dealer uses the date deposit paid/or order placed on his invoice as the tax point then he is liable for the VAT on the goods at the end of his VAT quarter which maybe before he gets the final payment or the goods delivered to the customer, not great for cash flow.

If you want the definitive answer then speak to HMRC

Chris


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## nidge1 (Jul 26, 2009)

*Re: VAT increase. Invoice date dependant or date cash receiv*



newleaf said:


> I have posted this on "Ask a Trader", but I thought I should ask everyones views.
> I have a new motorhome on order from Brownhills which is being delivered next March. They are now demanding payment in full by the end of December or be charged an extra 2.5% with the increase in vat.
> My business understanding is that the rate of vat is dependant on the date of invoice and has nothing to do with the date payment is received, its all to do with the date of invoice.
> I understand that using this vat argument is a good ploy to get sales by the end of the year, but surely demanding the money as well is a bit of a scam?
> What are your views please?


Hi, this was covered in a earlier topic and this was my reply ......I have also ordered a new MH at the recent NEC show and paid a small deposit.The dealer said the MH would be delivered around the end of March on a 11 plate. He has kept us informed of everything as we have added some extras.

Today I have received the following letter from him ----- Dear Sir, We have been informed by the VAT office that we can invoice you for your vechicle before 31st December 2010 and as long as the vechicle is collected and monies paid in full any time up to six months after, it can remain at 17.5% VAT. Any extras or alterations after 31st December 2010 will be invoiced at the increased amount.

Still seems a controversial topic.

Nidge


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## Rosbotham (May 4, 2008)

ICDSUN said:


> If a dealer uses the date deposit paid/or order placed on his invoice as the tax point then he is liable for the VAT on the goods at the end of his VAT quarter which maybe before he gets the final payment or the goods delivered to the customer, not great for cash flow.
> 
> Chris


You've hit the nail on the head Chris. The dealer could issue a VAT invoice now in order that the OP could pay at 17.5%, but were they to do so they'd have to pay the VAT at the end of this quarter, months in advance of actually receiving the revenues from the customer (*). That's a cashflow nightmare, and most businesses would simply not countenance doing that. Love 'em or hate 'em, for a dealer the size of Brownhills, having to carry a constant debt of 17.5% of turnover would be ruinous.

(*) Unless the OP pays Brownhills in full now, which would be naive in the extreme.

It looks like Nidge's dealer is carrying the VAT liability for a while, so clearly has a bit of money in the bank.

Paul


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## erneboy (Feb 8, 2007)

I don't see that the dealer needs to be paid in full. They should be happy to be paid the VAT, at the old rate, so that they are not out of pocket when their next return comes round. This means the dealer is not having to fund the VAT and the OP benefits from the lower rate. 

I would offer that and if they don't want it I would explain that I have done all I can can to be fair and that if it is not sufficient for them they can refund the money and cancel the order, Alan.


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## Rosbotham (May 4, 2008)

Guess that's true...but personally I wouldn't want to risk giving a motorhome dealer 17.5% of the purchase value 3-4 months in advance either, especially at what's probably the most difficult trading time of year. History shows dealers aren't immune to being put into administration.

You pays your money you takes your choice...


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## bognormike (May 10, 2005)

Rosbotham said:


> History shows dealers aren't immune to being put into administration.
> 
> You pays your money you takes your choice...


I seem to remember a previous incarnation using the same trading name doing just that :roll: .

As Peter at JCM says, the dealers should have sorted out what they were going to do in this situation months ago, it's not as if it was announced a couple of weeks ago :roll: 
Not being specific, but it seems they are generally quite happy to take the order and a deposit and not think about the consequences for orders that are not fulfilled by 4th January. :x


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## erneboy (Feb 8, 2007)

I agree Paul.

If I put my business hat on for a minute I agree with Peter. The new VAT rate was known about when the deal was done. Full details of the deal were known at that time and it was clear that the rate of VAT would have changed between the time of order and the time of delivery. The dealer is clearly guilty of having chose to ignore the new VAT rate at the time of the deal probably because they knew it might cause the buyer to reconsider and them to loose the sale. Having been in business for 35 years I would never have done this to a retail client. A business client would not care as they can reclaim the VAT.

I think the dealer has either made a silly error or is guilty of sharp practice. I would accommodate them as I suggested in my last but no further.

It has been suggested that there is a cash flow implication for the dealer. That is true under these circumstances, but only because there is a change in the VAT rate, ordinarily that would not be so and changes in VAT rates are extremely infrequent and usually announced well in advance. Any dealer would be very foolish not to have considered how they would deal with this, it was inevitable and perfectly obvious. It's hard to see how ignoring the obvious is anything other than sharp practice or a demonstration of a complete lack of business planning. Even less reason to pay now perhaps. If they can't plan three months in advance that is worrying, perhaps it is better not to deal with them, Alan.


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## inkey-2008 (May 24, 2008)

Do not pay for put it, put it on credit for the first year if you have problems they will get sorted as the credit company has far more clout than you. You also have more rights then if you have paid for it in full 

Brownhills could also do a Timberland and go bust then you may lose your van before you even get it. 

That was advice she was given by a solicitor after she paid in full then the company went bust and now cannot be bothered. 

Andy


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## Rosbotham (May 4, 2008)

erneboy said:


> It has been suggested that there is a cash flow implication for the dealer. That is true under these circumstances, but only because there is a change in the VAT rate, ordinarily that would not be so and changes in VAT rates are extremely infrequent and usually announced well in advance. Alan.


Not sure I agree there Alan, but VAT isn't my thing so this may be a bit of a dim comment.

In "steady state", if an invoice was issued at time or order with payment only on delivery 6 months later, then in a given qtr the dealer would be paying the VAT associated with new orders, and claiming back the VAT paid on vehicles just being delivered (for simplicity's sake, assuming they pay the converter on delivery).

So yes, no cashflow issue as the two balance in the same way as they would if invoice hence VAT payment was on delivery to the customer. But that's only if sales are level, which I would assume they never are in the motorhome industry...I'd imagine the sales pattern to be incredibly cyclical across the year.

So when in a qtr with predominately sales orders but few deliveries, there'd be little VAT to be reclaimed to offset that being paid in advance of receiving the customer's final payment. And those qtrs would be precisely the ones where there wasn't much revenue coming into the dealer to ease the pain.

Or am I missing something? As I say, VAT's not my thing, I leave it to our accountants.

Paul


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## erneboy (Feb 8, 2007)

What I mean is that the problem differs by a few percent, it's insignificant, was known about and should have been planned for, Alan.


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## newleaf (Jan 11, 2007)

Thanks everybody for your input.
I have contacted many organisations today and viewed many faq pages. The key is the invoice date (tax point) a company *can *invoice you in December after receipt of your order, and the invoice can be paid on delivery of product in March or whenever if they choose to grant you these terms. Or they could choose to misinterpret the rules and screw you for the whole cost on day of invoice!
I will post the official reply from HMRC when I get it, in the meantime from their site:-_When transactions take place for VAT purposes_
_The time of supply, often referred to as the tax point, is the date when a transaction takes place for VAT purposes. This date is not necessarily the date the supply physically takes place. _


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## newleaf (Jan 11, 2007)

HMRC reply

Our Reference: 5737020

Dear Mr Tompkins

Tax Points

Thank you for your enquiry of 15 December 2010, regarding when the VAT should be accounted for on a Motor home you have purchased.

As per section 14.2.2 of Public Notice 700 The VAT Guide If a trader supplies an invoice an actual tax point is created, therefore the VAT is accounted for when a VAT invoice is issued. If the VAT invoice is issued before the 31st December then VAT can be charged at the standard rate of 17.5%.

If you have any further queries regarding this matter, please submit your enquiry via our website, ensuring that you quote the case reference number at the top of this reply. Enquiries can be submitted by following the appropriate links on the VAT 'Contact us' page at www.hmrc.gov.uk


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## DTPCHEMICALS (Jul 24, 2006)

Thanks for your follow up from HMRC
So the simple answer is that you require an Invoice before the 31st December and 120 days to pay.

Dave p


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## ICDSUN (Oct 10, 2006)

newleaf said:


> HMRC reply
> 
> Our Reference: 5737020
> 
> ...


Good Result, can't be any clearer, so if dealer says otherwise you now have an official response outlining the actual situation.

Keep us informed about dealers response, but do not pay them any more money until you are taking the vehicle away and you are satisfied with it

Chris


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## Broom (Oct 8, 2007)

Hi All

Please do not pay Brownhills any moneys up front or prior to receiving your Motorhome. 

They went bust just after I put my Motorhome in early PX (3 months prior to receiving our new Motorhome) could have been very costly for us, a very stressful time.

All OK in the end

Best Regards
Broom


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## JohnsCrossMotorHomes (Jul 21, 2007)

newleaf said:


> HMRC reply
> 
> Our Reference: 5737020
> 
> ...


They forgot the sting in the tail about goods supplied after 4th Jan 2011 in that if it is not the traders *normal business practice* *in the past *for some time to do this, it could be construed as tax evasion.

But that would not be your problem.

Peter


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## Dinks123 (Apr 20, 2010)

We are in the hospitality service....You book your accommodation at 17.5% and pay your deposit in 2010. Depending on how your vat accounting is set up...cash accounting or other...you need to adjust your balance of payment when you receive it. We will be discounting the balance and then reinvoicing at the new rate. We do take a knock on the differance in vat.


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## jobla (Jun 18, 2006)

*VAT Increase*

Just a thought. What would be your position if you paid now and dealer was'nt around in March. Lots of rumours circulating about dealers having a really rough time of it at the moment. If you decided to pay before the end of the year would your cash be protected in the event the dealer went belly up, I think not. Better to bite the bullet and pay the little extra on delivery.

Regards and Seasons Greetings to all.


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## bognormike (May 10, 2005)

*Re: VAT Increase*



jobla said:


> Just a thought. What would be your position if you paid now and dealer was'nt around in March. Lots of rumours circulating about dealers having a really rough time of it at the moment. If you decided to pay before the end of the year would your cash be protected in the event the dealer went belly up, I think not. Better to bite the bullet and pay the little extra on delivery.
> 
> Regards and Seasons Greetings to all.


and to you 8)

It was alluded to several times in the thread - and you couldn't claim retention of title if you've paid for a vehicle that has not been identified, and is probably not in the dealer's stock, so bang goes your cash


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## newleaf (Jan 11, 2007)

Interesting dilema. Brownhills have a number of choices:-
1) Brownhills could (and should) issue an invoice in December (after a deposit covering the vat) for payment at the time of delivery.
2) Brownhills could issue an invoice for the part of the new motorhome, covered by the deposit and traded in vehicle, with the balance covered by an invoice on delivery. In which case I only pay the increased vat on part.
3) Brownhills could decide that they don't want to do any of the first two points because making every effort to get me to pay the whole might result in a complete 2010 sale and sales would get their bonus and commission etc etc this year.
Brownhills could legally and corectly do any of the above and would conform to HMRC vat requirements, but the above points are all listed in order of customer preference and helpfulness (although number 3 is not customer orientated or friendly at all).
I will let everybody know what transpires. Brownhills can choose to help me, or not, it's their call, but I am NOT coughing up with £40000.00.


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## nipperdin (Oct 28, 2007)

*VAT Increase*

I think that ICDSUN raises an important point.
The supplying dealer has the problem that he will have to pay the VAT at the end of his VAT quarter after the date of the invoice irrespective of whether he has received payment.

It is not unknown for suppliers (of all trades) to raise invoices to meet sales targets, achieve bonuses etc, before the goods have been supplied or even made.
But unless the goods are Zero rated, eg for export, they can get caught out on cash flow when they have to pay the VAT- or caught out by good auditors.


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## newleaf (Jan 11, 2007)

*Re: VAT Increase*



nipperdin said:


> I think that ICDSUN raises an important point.
> The supplying dealer has the problem that he will have to pay the VAT at the end of his VAT quarter after the date of the invoice irrespective of whether he has received payment.
> 
> It is not unknown for suppliers (of all trades) to raise invoices to meet sales targets, achieve bonuses etc, before the goods have been supplied or even made.
> But unless the goods are Zero rated, eg for export, they can get caught out on cash flow when they have to pay the VAT- or caught out by good auditors.


If the supplier is subscribed to "VAT Cash Accounting" vat is only paid when the customer pays the invoice. If "Standard VAT Accounting" then you get a deposit equal to the vat element.
Either way invoicing in December is easily acheivable, legitimate and customer friendly.


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## JohnsCrossMotorHomes (Jul 21, 2007)

*Re: VAT Increase*



nipperdin said:


> I think that ICDSUN raises an important point.
> The supplying dealer has the problem that he will have to pay the VAT at the end of his VAT quarter after the date of the invoice irrespective of whether he has received payment.
> .


Big deal, if a supplier cannot afford to pay the VAT a bit up front, he shouldn't be in business, it is peanuts in comparison to the sales/cash flow.

What about all the cash deposits that have been taken in advance for vans yet to be supplied from other customers.

Peter


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## erneboy (Feb 8, 2007)

I believe cash accounting is only an option for business with a small turnover although as Peter says it shouldn't be an issue regardless, Alan.


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## bognormike (May 10, 2005)

Casn accounting is only for traders of up to £1.35m pa.


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## newleaf (Jan 11, 2007)

*VAT increase*



newleaf said:


> Interesting dilema. Brownhills have a number of choices:-
> 1) Brownhills could (and should) issue an invoice in December (after a deposit covering the vat) for payment at the time of delivery.
> 2) Brownhills could issue an invoice for the part of the new motorhome, covered by the deposit and traded in vehicle, with the balance covered by an invoice on delivery. In which case I only pay the increased vat on part.
> 3) Brownhills could decide that they don't want to do any of the first two points because making every effort to get me to pay the whole might result in a complete 2010 sale and sales would get their bonus and commission etc etc this year.
> ...


I have been informed that Brownhills subscribe to option 2 resulting in an increased vat of some £800, however the interest or increase (hopefully) in investments over the next few months should cover it.
Can I please ask dealers to change the way they handle sales, come on guys "Raise an invoice on receiving an order with deposit", after all you have agreed a price and signed a contract!!!!


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## Twilight (Aug 20, 2009)

Hubby and I have read this thread with much interest....and have come to the conclusion that even though we have ordered and paid our deposit for our MH in October for delivery April 2011. As yet the MH has to be built....so does not exist at this Vat point. Therefore we surely must pay the increased VAT. But then hubby said "what about the vat on deposit...but thought that deposit is all part of purchase price. Its all too confusing.


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## bognormike (May 10, 2005)

Twilight said:


> Hubby and I have read this thread with much interest....and have come to the conclusion that even though we have ordered and paid our deposit for our MH in October for delivery April 2011. As yet the MH has to be built....so does not exist at this Vat point. Therefore we surely must pay the increased VAT. But then hubby said "what about the vat on deposit...but thought that deposit is all part of purchase price. Its all too confusing.


the deposit was paid when VAT was at 17.5%, remainder will be paid when the higher rate applies, so the extra VAT is only paid on the remainder.


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## newleaf (Jan 11, 2007)

*VAT increase*



Twilight said:


> Hubby and I have read this thread with much interest....and have come to the conclusion that even though we have ordered and paid our deposit for our MH in October for delivery April 2011. As yet the MH has to be built....so does not exist at this Vat point. Therefore we surely must pay the increased VAT. But then hubby said "what about the vat on deposit...but thought that deposit is all part of purchase price. Its all too confusing.


BognorMikle is right, but its always worth encouraging your dealer to issue an invoice *now *for the total and agreeing that the balance will be paid on delivery, some dealers accept this as standard business practice. It may or may not be your suppliers business practice, but it should be, and if enough people complain they just might decide to be more customer friendly.
Its fun having a go because the experience of this thread shows that most sales people haven't got a clue and need to be encouraged to get educated, and change working practices for the benefit of their customers.


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## JohnsCrossMotorHomes (Jul 21, 2007)

*Re: VAT increase*



newleaf said:


> Can I please ask dealers to change the way they handle sales, come on guys "Raise an invoice on receiving an order with deposit", after all you have agreed a price and signed a contract!!!!


Quite agree, we agree a total price in writing at the point of ordering and stick to it, always have done.

The increase in VAT has been known for months.

Peter


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