Up to 75% of dealer finance proposals contain tax errors

For many car dealers, getting the tax right on Value Added Products (VAPs) and other accessories sold alongside vehicles has been an ongoing source of frustration. It also carries significant implications if due care and attention is not given.  

At a low level, addressing incorrect tax calculations are an unwanted, often time-consuming administrative burden. However, errors of this nature can also damage a dealer’s reputation and carry the possibility of HMRC audits and penalties.  

The truth is that determining whether an item should be charged at IPT, VAT, or exempt from tax altogether can be complex and time-consuming.  

To identify the extent of the issue, we conducted research finding that dealers spend “countless” hours manually reviewing finance proposals to make sure the tax position is correct. With an error rate as high as 75%, the necessary but time-consuming rework is considerable. This is time that could be used far more effectively elsewhere. 

The discovery of the issue was unexpected, but it is something that we have worked to address, as Mathew reflects; 

“Our development team has worked closely with our dealers and lenders to build a new Accessory and VAP category validation feature within the DealTrak platform. The aim was to remove the possibility of misrepresenting the tax status of any aspect of the proposal. 

When working with a lender who is fully engaged in addressing this issue, the result has been transformative. Early adopters have reported a 0% error rate in tax categorisation, representing a significant leap forward in both compliance accuracy and operational efficiency.” 

The new functionality introduces a comprehensive set of controls and validations that automatically determine and apply the correct tax type for every VAP and accessory added during the vehicle sales process. Whether the proper classification is IPT, VAT, or no tax, DealTrak can help make sure that every transaction is categorised accurately, consistently, and instantly. 

Feedback from one large franchise dealer group cites the core benefit of a high straight-through funding effectiveness rate and 100% accuracy of invoicing. Similarly for lenders, benefits include a correct VAT element on all invoices plus the time saving efficiency.  

As Mathew concludes, “Productivity gains can be found in the most unlikely of places, and now not only are dealers saving significant amounts of time, but they are also avoiding the frustration that went with it.”