Can someone explain what "VAT Qualifying" means...
Discussion
D1MAC said:
The one thing you have to be careful of as the private chappie/chappess is the ex demo sale. The dealer registers the car as a demo, doesn't pay VAT, knocks £1500 or so off the price but only pays VAT on the profit on sale. So, punter gets a couple of £k or so off the price, thinks they have a good deal, but doesn't realise that the dealer paid for the car list price less a few grand of VAT saved (minus a bit of margin VAT) and still has their usual margin to play with.
The dealer does pay the VAT but then reclaims it as 'Input Tax' (this is different to not paying it). When the vehicle is sold the 'Output Tax' must be accounted for on the full sale price. Output Tax is calculated at 14.89 % of the gross sale price, otherwise known as the VAT fraction of 7/47.Example for a 'VAT Qualifying' car.
Purchase price. £10000.00
VAT reclaimed, calculated at 14.89% or 7/47 (Input Tax). £1489.36
Net purchase price. £8510.64 (£10000.00 - £1489.36)
Sale price. £11000.00
Vat due on sale, calculated at 14.89% or 7/47 (Output Tax). £1638.30
Net sale price. £9361.70 (£11000.00 - £1638.30)
The total VAT paid by the dealer on this sale is therefore £148.94 (£1638.30 - £1489.36)
Why 14.89 % and not 17.5 %. Very simply because VAT at 17.5 % applies to the net figure and not the gross i.e from Input Tax example above, £8510.64 x 17.5 % = £1489.36
Now, if the car was a 'Margin Car' the dealer would pay 14.89% or 7/47 of the gross profit which is £1000.00 (£11000.00 - £10000.00). £1000.00 x 14.89 % = £148.94 and so the VAT due is the same for 'Qualifying' or 'Margin' cars.
There is no real benefit to the dealer long term with Qualifying cars and it is certainly not a tool to hoodwink private customers in any way shape of form at all, as has been cynically suggested. Qualifying cars can be of extreme benefit to some end users but not the dealers. However from a dealers point of view it can aid cashflow if significant values of Qualifying cars are purchased in one VAT quarter and sold in a later one as it can 'push back' the VAT liability down the line 3/6/9 months depending on when it will eventually 'catch up' (which inevitably it will !) At the end of the day the VAT paid by the dealer will be the same whether Qualifying or Margin but when it is paid is affected by the VAT status.
Edited by meridian on Saturday 2nd August 10:42
meridian said:
D1MAC said:
The one thing you have to be careful of as the private chappie/chappess is the ex demo sale. The dealer registers the car as a demo, doesn't pay VAT, knocks £1500 or so off the price but only pays VAT on the profit on sale. So, punter gets a couple of £k or so off the price, thinks they have a good deal, but doesn't realise that the dealer paid for the car list price less a few grand of VAT saved (minus a bit of margin VAT) and still has their usual margin to play with.
The dealer does pay the VAT but then reclaims it as 'Input Tax' (this is different to not paying it). When the vehicle is sold the 'Output Tax' must be accounted for on the full sale price. Output Tax is calculated at 14.89 % of the gross sale price, otherwise known as the VAT fraction of 7/47.Example for a 'VAT Qualifying' car.
Purchase price. £10000.00
VAT reclaimed, calculated at 14.89% or 7/47 (Input Tax). £1489.36
Net purchase price. £8510.64 (£10000.00 - £1489.36)
Sale price. £11000.00
Vat due on sale, calculated at 14.89% or 7/47 (Output Tax). £1638.30
Net sale price. £9361.70 (£11000.00 - £1638.30)
The total VAT paid by the dealer on this sale is therefore £148.94.
Now, if the car was a 'Margin Car' the dealer would pay 14.89% or 7/47 of the gross profit which is £1000.00 (£11000.00 - £10000.00). £1000.00 x 14.89 % = £148.94 and so the VAT due is the same for 'Qualifying' or 'Margin' cars.
There is no real benefit to the dealer long term with Qualifying cars but it can aid cashflow if significant values of Qualifying cars are purchased in one VAT quarter and sold in a later one as it can 'push back' the VAT liability down the line 3/6/9 months depending on when it will eventuall 'catch up' (which inevitably it will !)
I love these people who post who always seem to think dealers are doing something wrong!
There is not a business in the land who would not work any tax advantage they may have regardless whether they are the corner shop or Tesco. In this case there is no major benefit to the dealer more to the potential purchaser.
The main benefit of a VAT Q used car is the method of funding. You can still contract hire/finance lease a VAT Q used car which you cannot do with a margin car.
Firstly, apologies for dragging up an old thread.
I'm in a wheelchair after breaking my neck a few years ago. As far as I understand I could be eligible to buy a new or used car tax exempt. Does anyone know how this would work on the purchase of a used car and the best way to go about it? Would I save much?
Many thanks in advance
A
I'm in a wheelchair after breaking my neck a few years ago. As far as I understand I could be eligible to buy a new or used car tax exempt. Does anyone know how this would work on the purchase of a used car and the best way to go about it? Would I save much?
Many thanks in advance
A
droow said:
Firstly, apologies for dragging up an old thread.
I'm in a wheelchair after breaking my neck a few years ago. As far as I understand I could be eligible to buy a new or used car tax exempt. Does anyone know how this would work on the purchase of a used car and the best way to go about it? Would I save much?
Many thanks in advance
A
If the used car is a VAT Qualifying vehicle, then you can buy it for the ex-VAT price. If the car is a margin scheme car (i.e. most used cars, because the original VAT was paid and not reclaimed in part or full when new), then it makes no difference to you. You can buy any new car for the ex-VAT price as they are all eligible for VAT. I'm in a wheelchair after breaking my neck a few years ago. As far as I understand I could be eligible to buy a new or used car tax exempt. Does anyone know how this would work on the purchase of a used car and the best way to go about it? Would I save much?
Many thanks in advance
A
Not that it does not equate to a 20% discount off MRRP, but a 16.666% effective discount (20/120ths) on the price exclusive of VED (which will be zero-rated for you as part of producing your award notice from DWP) and first reg fee.
I'm presuming you're eligible or in receipt of the Higher Rate Mobility Component of Disability Living Allowance (HRMCDLA), thus eligible for a vehicle under the Motability scheme, which can work out very good value as all your insurance and maintenance is covered too. Well worth a look.
Scheme details: http://www.motabilitycarscheme.co.uk/main.cfm?type...
Your VED will also be FOC, so if you buy a car with several months unexpired tax on it, send it back for a refund and retax it yourself for £0. It's not a lot of money at around £15 per whole calendar month remaining, but it's better than bugger all.
Edited by Zwoelf on Sunday 13th November 15:36
Zwoelf said:
If the used car is a VAT Qualifying vehicle, then you can buy it for the ex-VAT price. If the car is a margin scheme car (i.e. most used cars, because the original VAT was paid and not reclaimed in part or full when new), then it makes no difference to you. You can buy any new car for the ex-VAT price as they are all eligible for VAT.
Not that it does not equate to a 20% discount off MRRP, but a 16.666% effective discount (20/120ths) on the price exclusive of VED (which will be zero-rated for you as part of producing your award notice from DWP) and first reg fee.
I'm presuming you're eligible or in receipt of the Higher Rate Mobility Component of Disability Living Allowance (HRMCDLA), thus eligible for a vehicle under the Motability scheme, which can work out very good value as all your insurance and maintenance is covered too. Well worth a look.
Scheme details: http://www.motabilitycarscheme.co.uk/main.cfm?type...
Your VED will also be FOC, so if you buy a car with several months unexpired tax on it, send it back for a refund and retax it yourself for £0. It's not a lot of money at around £15 per whole calendar month remaining, but it's better than bugger all.
Thanks very much for the info.Not that it does not equate to a 20% discount off MRRP, but a 16.666% effective discount (20/120ths) on the price exclusive of VED (which will be zero-rated for you as part of producing your award notice from DWP) and first reg fee.
I'm presuming you're eligible or in receipt of the Higher Rate Mobility Component of Disability Living Allowance (HRMCDLA), thus eligible for a vehicle under the Motability scheme, which can work out very good value as all your insurance and maintenance is covered too. Well worth a look.
Scheme details: http://www.motabilitycarscheme.co.uk/main.cfm?type...
Your VED will also be FOC, so if you buy a car with several months unexpired tax on it, send it back for a refund and retax it yourself for £0. It's not a lot of money at around £15 per whole calendar month remaining, but it's better than bugger all.
Edited by Zwoelf on Sunday 13th November 15:36
Alas there's hardly any car options left on motability now thanks to the daily mail!! That's why I'm going down this route.
geezer555 said:
thanks for your insight with the VAT issue, i actually work from home and export 2nd hand cars abroad, how would the VAT Qualifying play a part with this? if it does?
thanks
If within the EU, I don't think it does any more. Outside the EU, then you can reclaim it, but have to pay local sales taxes as well as import duties. thanks
hello from NZ ... I found this forum/thread while searching out what "VAT Qualifying" means, so its all very informative thanks.
I plan to travel (back) to the UK in July this year and be there for about 6 weeks, so I am thinking it might be worth my while purchasing a vehicle soon after arriving that I can then ship back to NZ at the end of my trip.
Am I correct in thinking that in order to take advantage of the ability to either not pay VAT or claim it back later I would have to purchase a "VAT Qualifying" vehicle?
I don't plan on buying new so it would have to be an ex-lease or company or demo car, rather than a private sale.
FYI: In NZ we have our own version of VAT called GST (Good and Services Tax) which I would have to pay upon the vehicles arrival and the amount would be 15% of the vehicles cost plus shipping and insurance charges (and probably others as well). With this lower rate of VAT and combined with a (relatively) strong NZ dollar it may well be worth my while as back in NZ most european cars fetch quite a high price on the yard or when sold privately.
cheers
josh
I plan to travel (back) to the UK in July this year and be there for about 6 weeks, so I am thinking it might be worth my while purchasing a vehicle soon after arriving that I can then ship back to NZ at the end of my trip.
Am I correct in thinking that in order to take advantage of the ability to either not pay VAT or claim it back later I would have to purchase a "VAT Qualifying" vehicle?
I don't plan on buying new so it would have to be an ex-lease or company or demo car, rather than a private sale.
FYI: In NZ we have our own version of VAT called GST (Good and Services Tax) which I would have to pay upon the vehicles arrival and the amount would be 15% of the vehicles cost plus shipping and insurance charges (and probably others as well). With this lower rate of VAT and combined with a (relatively) strong NZ dollar it may well be worth my while as back in NZ most european cars fetch quite a high price on the yard or when sold privately.
cheers
josh
I have just had a read of this:
Exporting motor vehicles outside the EU - the Personal Export Scheme:
http://www.hmrc.gov.uk/vat/sectors/consumers/perso...
the main points it states are:
When you buy a vehicle under the scheme, the supplier will give you an application form VAT 410.
You must:
read VAT notice 705
complete the form
sign it to say you have read Notice 705
hand it back to the supplier.
and:
If you are from outside the EU, you may use the vehicle in the UK during the last 12 months of your stay in the EU. If you are an EU resident who is emigrating, you may only use the vehicle during the last six months before you emigrate.
It doesn't mention any thing regarding "VAT Qualifying" so I am not sure if this is relevant, so possibly I can buy any used car from any car yard? (who can give me form VAT 410)
Exporting motor vehicles outside the EU - the Personal Export Scheme:
http://www.hmrc.gov.uk/vat/sectors/consumers/perso...
the main points it states are:
When you buy a vehicle under the scheme, the supplier will give you an application form VAT 410.
You must:
read VAT notice 705
complete the form
sign it to say you have read Notice 705
hand it back to the supplier.
and:
If you are from outside the EU, you may use the vehicle in the UK during the last 12 months of your stay in the EU. If you are an EU resident who is emigrating, you may only use the vehicle during the last six months before you emigrate.
It doesn't mention any thing regarding "VAT Qualifying" so I am not sure if this is relevant, so possibly I can buy any used car from any car yard? (who can give me form VAT 410)
Hi all I have just joined the forum as I was trying to understand the 'VAT Qualifying' tag I see at cars sold through auctions. It appears most if not all the cars I want to buy at auction have this qualification applied. Recently I have been puzzled why most dealers appear to be able to outbid private buyers. I know they pay a smaller buyers premium but this would not explain the difference. Is it not the case when they purchase a 'VAT qualifying' car they are able to recover the portion of VAT that has been applied, which a private buyer is unable to do? This gives the dealer a 17%-20% advantage over the private buyer which means I won't be attending any more auctions!
addick said:
Hi all I have just joined the forum as I was trying to understand the 'VAT Qualifying' tag I see at cars sold through auctions. It appears most if not all the cars I want to buy at auction have this qualification applied. Recently I have been puzzled why most dealers appear to be able to outbid private buyers. I know they pay a smaller buyers premium but this would not explain the difference. Is it not the case when they purchase a 'VAT qualifying' car they are able to recover the portion of VAT that has been applied, which a private buyer is unable to do? This gives the dealer a 17%-20% advantage over the private buyer which means I won't be attending any more auctions!
Can they not claim back the VAT if they are VAT registered company?addick said:
Hi all I have just joined the forum as I was trying to understand the 'VAT Qualifying' tag I see at cars sold through auctions. It appears most if not all the cars I want to buy at auction have this qualification applied. Recently I have been puzzled why most dealers appear to be able to outbid private buyers. I know they pay a smaller buyers premium but this would not explain the difference. Is it not the case when they purchase a 'VAT qualifying' car they are able to recover the portion of VAT that has been applied, which a private buyer is unable to do? This gives the dealer a 17%-20% advantage over the private buyer which means I won't be attending any more auctions!
The VAT status will make no difference to what a dealer pays for a car at auction as he has to charge it on again at the sale price. Making it a VAT qualifying car.Can you please tell me where the auction is where members of the general public are bidding less for cars than dealers.
A VAT qualifying car is one that has been used ONLY for business purposes so the VAT was recoverable by the first and any subsequent VAT registered owners who will also use it ONLY for business purposes. For a VAT registered business needing to buy a used car for use as, say, a pool car a VAT qualifying car is attractive because they can recover the VAT on the purchase price, though they will have to pay VAT on the future sale price which is likely to be lower.
The first owner to have any private use breaks the chain, the car ceases to be VAT qualifying, and no-one else can ever recover the VAT paid on purchase.
Examples would include retailer or manufacturer's press fleets (but not staff cars if they were available for private use), ex-lease or hire cars (because the lessor acquired them for use in their business - the fact the customer may have had private use is immaterial here), driving school cars, pool cars, etc.
For private buyers, the term VAT qualifying has no practical implication at all, except maybe as an indication of the previous life of the car.
The first owner to have any private use breaks the chain, the car ceases to be VAT qualifying, and no-one else can ever recover the VAT paid on purchase.
Examples would include retailer or manufacturer's press fleets (but not staff cars if they were available for private use), ex-lease or hire cars (because the lessor acquired them for use in their business - the fact the customer may have had private use is immaterial here), driving school cars, pool cars, etc.
For private buyers, the term VAT qualifying has no practical implication at all, except maybe as an indication of the previous life of the car.
GoneAnon said:
A VAT qualifying car is one that has been used ONLY for business purposes so the VAT was recoverable by the first and any subsequent VAT registered owners who will also use it ONLY for business purposes. For a VAT registered business needing to buy a used car for use as, say, a pool car a VAT qualifying car is attractive because they can recover the VAT on the purchase price, though they will have to pay VAT on the future sale price which is likely to be lower.
The first owner to have any private use breaks the chain, the car ceases to be VAT qualifying, and no-one else can ever recover the VAT paid on purchase.
Examples would include retailer or manufacturer's press fleets (but not staff cars if they were available for private use), ex-lease or hire cars (because the lessor acquired them for use in their business - the fact the customer may have had private use is immaterial here), driving school cars, pool cars, etc.
For private buyers, the term VAT qualifying has no practical implication at all, except maybe as an indication of the previous life of the car.
Thanks for this. I am looking to buy a used car at auction for business use only, which is VAT qualifying and we're VAT registered.The first owner to have any private use breaks the chain, the car ceases to be VAT qualifying, and no-one else can ever recover the VAT paid on purchase.
Examples would include retailer or manufacturer's press fleets (but not staff cars if they were available for private use), ex-lease or hire cars (because the lessor acquired them for use in their business - the fact the customer may have had private use is immaterial here), driving school cars, pool cars, etc.
For private buyers, the term VAT qualifying has no practical implication at all, except maybe as an indication of the previous life of the car.
In term of how it works, is VAT Added to the hammer price (eg if it falls at for example £10k, you pay £12k with the vat gross), or is the hammer price inclusive of the VAT, such that I'd be able to reclaim the Vat element of the £10k in my business returns?
Thanks for the responses. I think internet-carlot in this thread explains the situation well, how the dealer recovers the VAT on the car when he sells the car on. Effectively he owes the VATman the difference between the VAT he paid when purchasing the car and the VAT he charges when selling the car. So most of the VAT he paid when purchasing the car is recovered. I guess if you have any business where VAT is charged on output materials you can still recover the VAT paid on a vehicle purchased for business use.
To answer Eunice when buying a car at auction the VAT in included in the 'hammer price'.
To answer Eunice when buying a car at auction the VAT in included in the 'hammer price'.
GoneAnon said:
A VAT qualifying car is one that has been used ONLY for business purposes so the VAT was recoverable by the first and any subsequent VAT registered owners who will also use it ONLY for business purposes. For a VAT registered business needing to buy a used car for use as, say, a pool car a VAT qualifying car is attractive because they can recover the VAT on the purchase price, though they will have to pay VAT on the future sale price which is likely to be lower.
The first owner to have any private use breaks the chain, the car ceases to be VAT qualifying, and no-one else can ever recover the VAT paid on purchase.
Examples would include retailer or manufacturer's press fleets (but not staff cars if they were available for private use), ex-lease or hire cars (because the lessor acquired them for use in their business - the fact the customer may have had private use is immaterial here), driving school cars, pool cars, etc.
Interesting. The first owner to have any private use breaks the chain, the car ceases to be VAT qualifying, and no-one else can ever recover the VAT paid on purchase.
Examples would include retailer or manufacturer's press fleets (but not staff cars if they were available for private use), ex-lease or hire cars (because the lessor acquired them for use in their business - the fact the customer may have had private use is immaterial here), driving school cars, pool cars, etc.
I'm looking into the possibility of buying a car through my VAT-registered business to use for business use only, and was intrigued as to what "VAT qualifying" meant, and google brought me here.
So if a dealer is selling a "VAT Qualifying" car then is it a fair bet that it's an ex-lease or ex-hire car?
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