Up to 75% of dealer finance proposals contain tax or VAT errors on accessories and value-added products (VAPs), according to new research by DealTrak.
The F&I platform said that the incorrect tax treatment of VAPs and accessories has long been a frustration for car dealers, creating an additional administrative burden and exposing businesses to reputational risk, HMRC audits, and potential penalties.
Determining whether an item should be charged at insurance premium tax, VAT, or be tax-exempt can be complex, particularly when handled manually during the sales process.
DealTrak’s research found that dealers spend “significant time” reviewing finance proposals to ensure tax accuracy. With an error rate reported as high as 75%, the volume of rework required is substantial, diverting staff from other operational priorities.
The issue was identified during analysis of dealer workflows, prompting DealTrak to develop additional controls within its platform.
Mathew Stonley, head of business at the company, said: “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 applies automated controls to determine and apply the correct tax treatment for each VAP and accessory added to a finance proposal, whether that is IPT, VAT or no tax.
Feedback from a large franchise dealer group highlighted improvements in straight-through funding rates and invoicing accuracy. Lenders have also reported benefits, including correct VAT treatment on invoices and reduced processing time.
Stonley added: “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.”