Car Scrappage Scheme Launched

Both private and business purchasers of cars and light vans can now take advantage of a temporary scrap allowance of £2,000 given against the disposal of cars and light vans over 10 years old in exchange for the purchase of a new model. The allowance is funded 50% by Government and 50% by participating motor manufacturers. The treatment of the allowance due for direct tax and VAT purposes is quite complex but guidance has been issued to the industry.

There was an initial problem with the treatment of VAT on affected transactions but this has now been clarified. For the business purchaser the allowance is treated as a reduction in the cost of the new vehicle rather than the proceeds of the old vehicle so no tax charge arises immediately on the £2,000 it merely reduces future tax relief on the vehicle purchased.

Full details for the scheme are available from participating dealers and from the BERR website at

http://www.direct.gov.uk/en/Motoring/BuyingAndSellingAVehicle/AdviceOnBuyingAndSellingAVehicle/DG_177693