Warranty tax scheme scuppered

A tax avoidance scheme designed to avoid VAT on car repairs that could have cost the Exchequer £600 million a year has failed after a successful challenge by HM Revenue and Customs. The scheme involved the restructuring of a group selling car warranties so that VAT on car repair services could be recovered, even though insurers cannot normally recover VAT on car repair work. The insurer’s responsibility to repair the cars was devolved to a claims handler via two Gibraltar reinsurers.??The Supreme Court ruled unanimously against the scheme, which started in 1998. This ruling protects £600 million per year which was potentially at risk from businesses using this kind of avoidance scheme.