What is VAT?

Value Added Tax (VAT) is a tax applied to goods and services by HM Revenue and Customs (HMRC). In the UK, VAT on cars is 20%, which is included in the advertised price. Under certain conditions, buyers can reclaim this VAT, reducing the purchase price by 20%. Dealers must also pay VAT on profits from qualifying cars.

What Does VAT Qualifying Mean?

A car is considered VAT qualifying if it is either brand new or has only been owned by a business for business purposes throughout its lifetime. A VAT-registered buyer purchasing a VAT qualifying car for business use can reclaim VAT, provided they have the necessary documentation.

The term “gross VAT qualifying” means the vehicle has been registered to a business, keeping its VAT reclaimable status.

What is Non-VAT Qualifying?

Any vehicle that has been privately owned at any point in its lifetime becomes non-VAT qualifying. VAT can no longer be reclaimed, and its VAT status cannot be reinstated.

Types of VAT Qualifying Cars

VAT qualifying cars fall into different categories:

• Brand New Cars – Directly purchased from a franchised dealer and remain VAT qualifying if registered to a VAT-registered business.
• Used Cars – Retain VAT qualifying status if exclusively owned by a business and VAT was applied at purchase. Once sold to a private owner, they become non-VAT qualifying.
• Commercial Vehicles – Includes vans, trucks, and pickups owned by businesses.
• Adapted Cars – Vehicles modified for individuals with disabilities, subject to specific conditions.
• Electric Cars – New electric cars remain VAT qualifying if owned by a business and not a private individual.

What is a Margin Car?

A margin car refers to a VAT margin vehicle. These cars are non-VAT qualifying because VAT has already been paid in a previous transaction. Once VAT has been paid, the status cannot be reversed.

What is a VAT Deductible Car?

A VAT deductible car is simply another term for a VAT qualifying car.

VAT Savings for Export Customers

For overseas buyers, purchasing a VAT qualifying car for export allows them to reclaim 20% VAT from HMRC, making it the most significant cost-saving factor. For example, a VAT qualifying car priced at £36,000 drops to £30,000, as the £6,000 VAT is reclaimable upon export.

Benefits for UK Buyers

UK VAT-registered businesses can also reclaim 20% VAT if purchasing a VAT qualifying car for business use. Proper documentation is required for tax compliance.

How Does VAT Work on Cars?

VAT is charged at 20% on car sales to private individuals. It is typically not itemized in advertisements. There are two ways to calculate VAT:

1. Advertised Price ÷ 6 = VAT amount.
2. Advertised Price ÷ 1.2 = Price excluding VAT.

VAT on Different Car Types

• New Cars – Start as VAT qualifying. If registered to a private individual, they become non-VAT qualifying.
• Used Cars – Can be VAT qualifying if owned exclusively by a business.
• Pre-registered Cars – Owned by a dealer or leasing company, keeping them VAT qualifying.
• Lease Cars – Often VAT qualifying if bought from a business.
• Company Cars – VAT qualifying if owned by a company, but may lose status if registered to an individual employee.
• Electric Cars – Subject to the same VAT rules as petrol and diesel cars.
• Commercial Vehicles – VAT applies to vans, pickups, and motorhomes similarly to cars.

VAT Relief for Adapted Cars

VAT relief is available for vehicles modified for disabled users if they meet these conditions:

• Must have specific adaptations for the disabled individual.
• Must be used for business purposes only.
• Must be used for at least 6 months.
• Buyer must be VAT registered.

VAT relief can be up to 20% of the purchase price.

Who Can Reclaim VAT?

Private individuals cannot reclaim VAT. Only VAT-registered buyers can reclaim VAT on a qualifying vehicle. Non-export dealers are unlikely to assist in VAT reclaims. If purchasing from one, expert assistance is recommended.

How to Reclaim VAT on an Exported Car

Before purchasing a VAT qualifying car for export, ensure you understand the VAT reclaim process. Some companies may require upfront VAT payment with a refund upon successful reclaim. This is risky and unnecessary. Instead, buy at a VAT-free price to minimize financial risk.

List of VAT Qualifying Cars

Our stock list includes a wide range of VAT qualifying cars available for sale in the UK. Updated daily, this list offers potential buyers access to vehicles ideal for business or export.

Personal Export Scheme

If planning to drive a VAT qualifying car in the UK or Europe before exporting within 12 months, check out the Personal Export Scheme.

Thinking of Buying a VAT Qualifying Car?

With over 15 years of experience in sourcing and exporting new and used prestige cars worldwide, our team can help you find the best VAT qualifying vehicles.

Conclusion

VAT qualifying cars are subject to 20% VAT in the UK. They can be purchased by VAT-registered businesses for domestic use or export, offering up to 20% savings when VAT is reclaimed.

Understanding the different types of VAT qualifying cars—new cars, used cars, commercial vehicles, adapted cars, and electric cars—helps buyers make informed decisions.

For adapted cars, VAT relief is available under specific conditions.

Before purchasing, ensure the seller is VAT registered and that the vehicle meets all VAT qualifying criteria. By understanding VAT regulations, businesses and individuals can maximize savings and comply with tax laws effectively.