Confusion over VAT payments sent the government’s car scrappage scheme into chaos yesterday.

Some of the world’s biggest carmakers, including Ford, Honda and Vauxhall, told dealers to hold off from registering new vehicles under the scheme, as they waited for clarification of details surrounding their tax treatment.

The scheme was announced in the Budget, with the government and motor industry putting £1,000 each towards people trading in a car over ten years old for a new vehicle.

A spokesman for Honda told the Times that how VAT was dealt with under the new scheme must be clarified, pointing to a document issued by HM Revenue & Customs last week as confusing the situation.

‘The document sent out last week from the Revenue was quite a confusing document. This is what we are seeking clarification on,’ said the spokesman.

Department for Business, Enterprise and Regulatory Reform officials said the arrangements were clear from the outset.