To add VAT or not to add VAT, that is the question. The VAT rules on MOTs can be confusing, and depend on a number of factors. DragonDMS simplifies the process for you when using the three different scenarios detailed below.
Scenario 1: MOT approved test centre
If you are an approved MOT test centre, then the MOT fee is deemed as outside the scope of VAT (as long as you don’t charge more than the statutory maximum fee). The MOT fee will post to T9 (outside the scope of VAT) in Sage.
If you are using a 3rd party MOT test centre then the rules are a bit more complicated.
Scenario 2: MOT treated as disbursement
i. You pass the exact cost of the MOT onto your customer – the MOT fee is treated as a disbursement and outside the scope of VAT and will be posted to T9 in Sage; or
ii. You pass the exact cost of the MOT onto your customer and charge an arrangement fee listed on the Invoice as a separate item – the MOT fee is treated as a disbursement, is outside the scope of VAT and is posted to T9 in Sage. The arrangement fee is liable for VAT at the standard rate which will post to T1 in Sage. The arrangement fee should be added to the Service Invoice as a VATable Extra.
Scenario 3: Charge VAT on a MOT
You charge your customer an MOT fee greater than the cost of the MOT and show this as a single item on the Sales Invoice. The MOT is then not treated as a disbursement and the whole value of the MOT fee is liable to VAT. The VAT Rate is taken from the default service VAT Rate so, typically, a Retail Service will post to T1 (standard rate VAT).
MOT default option
You can select a MOT default option by clicking on ‘Settings’> Service > Defaults and click on the ‘MOT Option’ tab.
You will then see the following screen where you can select the correct option for your business using the scenarios above, and explanations for each option, to assist:
Changing the VAT rate for a MOT fee on a specific Service Invoice
If you would like to change the VAT Rate for a MOT fee on a specific Service Invoice, from within the Service Record, click on the ‘Invoicing’ button, then the ‘Invoice’ tab. You will then see a button next to the MOT box:
Clicking on this button gives you the option to change the VAT Rate for the MOT fee on this specific Service Invoice. It is your responsibility to apply the correct VAT Rate:
For approved MOT test centres, DragonDMS automatically creates a MOT Labour Line and barcode on your Job Cards when you select ‘MOT: Yes’ from the dropdown list on the ‘Invoicing’ screen:
Electronic Clock Users
For people using the electronic clock, this MOT Labour Line allows your technicians to scan onto the MOT and record their time taken. The Labour Line is for internal purposes only and will not display on the Invoice to the customer.
The time taken on the MOT will then display on the Labour screen as well as on all clocking and efficiency reports.
The ‘MOT Standard Hours’ will be taken from a Service Department default setting where you can specify the time it should take the technician to carry out MOT tests. This is used to calculate productivity and efficiencies on MOTs.
This setting can be managed by clicking on ‘Settings’ > Service > Defaults > ‘Departments’ tab and then double clicking on the relevant department e.g. ‘Service (Retail)’ and entering the ‘MOT Std Hrs’.
Please note, you will need to enter the ‘MOT Std Hrs’ for each of your Service Departments.
For more information on VAT rules for MOTs, look at point 25.4 in Notice 700 The VAT Guide – HM Revenue & Customs