Probably a demo car where the VAT has been offset when it was purchased as a 'used' car. This then needs to be charged on at point of sale.

They are preferential for business users as the VAT on the rentals can be offset/claimed back dependant on usage/finance agreement.

YHM

If you're a chauffeur company, or car hire etc then you can claim the VAT back, it does mean that when you sell the car on it will still be VATable so you'll have a VAT element to pay out of the sale proceeds.

As a private punter it makes not a scrap of difference, it is just advertised that way in case a potential customer is in the position where they can reclaim the VAT.

Because all used cars contain a VAT element in their price, called margin VAT, it is payable by the dealer so the customer need not know how much is being paid, nor can they reclaim it. A VAT qualifying car is different as explained above and to a business it is important to know if the car they are buying is VAT qualifying.

But your rolleyes suggested that the dealer is somehow trying to mislead the punters when in actual fact what you're saying is that some buyers don't understand VAT rules.

Yes some private customers might not ring but with a £40k car there is a lot greater chance that a) the car will appeal to corporate buyers for whom it being VAT qualifying is crucial and b) the buyer of a car at that price point is much more likely to be in business and understand what the dealer is saying when he says it is VAT qualifying.

Just to keep banging on about this for just a little while longer

It just looks like the trade taking another opportunity to shoot itself in the foot (hence the ) using terms that are not crystal clear to all potential clients. Maybe a qualification such as 'for business users..this car is VAT qualifying' might be less gaff prone.

A couple of questions...

If the car is bought by the company (and therefore they are able to reclaim the VAT back)...

1. Does the car HAVE to be exclusively for business use? (i.e a trade van?)
1a. If not, does it get complicated when calculating how much VAT is reclaimable, splitting between personal and business.

2. Is there a limit to the period you can claim the VAT back? (Like mileage expences 40p/m > 10,000 changing to 20p/m thereafter)

3. If the car is bought by the company surely the user of the car is then subject to company car tax, which would make the savings of VAT more or less irrelevant anyway?

I have the option to buy the car either privatly or through my business but the car will be used 50/50 business / personal use so Im trying to understand which is the best way forward, and save myself a few pennies

Im going to have a chat with my accountant on monday about it, but would like to get as clued up as possible before hand.

Thanks
Lee

J111, thanks for replying so quickly, by the looks of it its a non starter.

Cheers
Lee

No it means that no VAT registered concern has claimed the initial purchase element of VAT on the car, which can only be claimed once.
I must admit, I'm not 100% clear if this ignores the trade element (i.e. where the trade registers cars for demo purposes and thus doesn't pay full VAT) - my VAT knowledge isn't what it ought to be, but then I'm not doing a job where it is particularly relevant, plus it's a while now since I did it.

As a private punter, you pay the quoted price - £39,995 - and ignore the VAT qualifying caveat, even if it is somewhat unclear!!!

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.