VAT qualifying vehicles
Discussion
I have seen a few ads recently proclaiming a car is "Vat qualifying". What does it mean?
I had it in my head that these cars are ex-lease or something and there is a VAT elemnet I can reclaim if bought for business, but that on sale I have to apply VAT. Is that right does anyone know?
I could be tempted if I have the concept right.
I found this:
VAT Status and Used Cars
The use to which a car is put will determine its status for VAT purposes. In turn, that VAT status will determine whether VAT should be charged on the disposal of the car and hence whether there is any VAT available for recovery in the hands of a subsequent owner.
If VAT has been fully recovered on a car, that car will be “VAT qualifying”. If a qualifying car is sold VAT will be chargeable on its sale, and recoverable by the purchaser under the rules outlined above.
If input VAT recovery has been restricted on a car at any point in its life, that car becomes “Non-Qualifying”. VAT will not be due on the sale of a non-qualifying car.
Leased Cars
The 100% VAT recovery block does not apply to leased cars. Instead, where a leased car is available for private use, VAT recovery for a normal business will only be restricted by 50%.
There is currently some debate about the legality of the UK’s 50% VAT recovery block, but from Customs’ perspective the block still stands.
As I understand it, a vehicle bought which has no private use (rare) has the VAT recovered and thereafter on sale has to have VAT applied but it can be reclaimed if the purchaser is VAT registered. Therefater, if it gets private use (which it almost certainly will) the qualification ends and there after no VAT is recoverable.
Am I reading thius right. I am sure HMRC have some little rules to make this unattractive!
VAT Status and Used Cars
The use to which a car is put will determine its status for VAT purposes. In turn, that VAT status will determine whether VAT should be charged on the disposal of the car and hence whether there is any VAT available for recovery in the hands of a subsequent owner.
If VAT has been fully recovered on a car, that car will be “VAT qualifying”. If a qualifying car is sold VAT will be chargeable on its sale, and recoverable by the purchaser under the rules outlined above.
If input VAT recovery has been restricted on a car at any point in its life, that car becomes “Non-Qualifying”. VAT will not be due on the sale of a non-qualifying car.
Leased Cars
The 100% VAT recovery block does not apply to leased cars. Instead, where a leased car is available for private use, VAT recovery for a normal business will only be restricted by 50%.
There is currently some debate about the legality of the UK’s 50% VAT recovery block, but from Customs’ perspective the block still stands.
As I understand it, a vehicle bought which has no private use (rare) has the VAT recovered and thereafter on sale has to have VAT applied but it can be reclaimed if the purchaser is VAT registered. Therefater, if it gets private use (which it almost certainly will) the qualification ends and there after no VAT is recoverable.
Am I reading thius right. I am sure HMRC have some little rules to make this unattractive!
I recently bought a 52 plate Espace that was a VAT Qualifier. The previous owner was Renault Finance and it was used exclusively for business use by Renault UK. Therefore they were able to claim back the VAT element of the original price because it was 100% business use. When they sold it on, they had to charge the VAT on. Luckily for me, I was able to reclaim the VAT on the purchase because I was VAT registered. Similarly when I sell it on, I'll have to charge VAT. It all stops when it ends up in private hands/someone who is not registered for VAT.
Tyre Smoke said:
I recently bought a 52 plate Espace that was a VAT Qualifier. The previous owner was Renault Finance and it was used exclusively for business use by Renault UK. Therefore they were able to claim back the VAT element of the original price because it was 100% business use. When they sold it on, they had to charge the VAT on. Luckily for me, I was able to reclaim the VAT on the purchase because I was VAT registered. Similarly when I sell it on, I'll have to charge VAT. It all stops when it ends up in private hands/someone who is not registered for VAT.
so can you guarantee no personal use? If not (and i doubt it) you cannot reclaim the input tax.
Tyre Smoke said:
I recently bought a 52 plate Espace that was a VAT Qualifier. The previous owner was Renault Finance and it was used exclusively for business use by Renault UK. Therefore they were able to claim back the VAT element of the original price because it was 100% business use. When they sold it on, they had to charge the VAT on. Luckily for me, I was able to reclaim the VAT on the purchase because I was VAT registered. Similarly when I sell it on, I'll have to charge VAT. It all stops when it ends up in private hands/someone who is not registered for VAT.
This was my reading, that in effect as a subsequent purchaser you bought it net of VAT but then charged VAT when you sold it.
Sorry, I meant you paid the VAT and reclaimed it and then charged VAT on sale.
Edited by Leftie on Tuesday 1st August 16:52
Smartie said:
ah, scratch that as you run a taxi business don't you?
wouldn't be the same for most businesses.
wouldn't be the same for most businesses.
Yes it would.
It's only the original purchaser who can claim the VAT back if they can prove exclusively business use - normally lease companies. Because they have claimed it back, they much charge it on the sale when they sell the vehicle. I can claim this back because it is a legit business expense, but similarly I have to charge VAT when I sell it. It only stops when the next purchaser is unable to claim back VAT, but I still have to charge it. They pay me £10k for the vehicle, which is really just over £8k plus VAT at 17.5%.
Most businesses are unable to claim back Input VAT on motor cars - for the simple reason that the cars used in the business have dual business and private elements. On very, very rare occasions, a business MIGHT be able to prove that the car purchased had absolutely NO private useage whatsoever (a very unlikely scenario) but, if proveable, the Input VAT can be reclaimed.
Most businesses who are able to claim back VAT on cars are usually businesses which are in the motor trade or directly connected to the motor trade.
If a business was successfully able to claim back Input VAT when it bought a car, it MUST charge Output VAT on teh full sale value of the car when the car is sold on. The VAT charged on this sale can only be reclaimed by the purchasing entity
a) if the putrchasisng entity is VAT registered
AND
b) the entity's use of the car will satisfy the very restrictive Motor Car Input VAT reclaim criteria.
Most businesses who are able to claim back VAT on cars are usually businesses which are in the motor trade or directly connected to the motor trade.
If a business was successfully able to claim back Input VAT when it bought a car, it MUST charge Output VAT on teh full sale value of the car when the car is sold on. The VAT charged on this sale can only be reclaimed by the purchasing entity
a) if the putrchasisng entity is VAT registered
AND
b) the entity's use of the car will satisfy the very restrictive Motor Car Input VAT reclaim criteria.
seems there may be an exemption for taxi businesses to allow the reclaim of input tax. Think this also applies to driving schools?
Also though, if a vehcile is bought and VAT isn't claimed (maybe not VQ) then when its sold you nee dto caluclate output VAT on the fixed profit acheme as if it were sold as by used car trader! (ie VAT on the profit element, if any!)
Also though, if a vehcile is bought and VAT isn't claimed (maybe not VQ) then when its sold you nee dto caluclate output VAT on the fixed profit acheme as if it were sold as by used car trader! (ie VAT on the profit element, if any!)
Smartie said:
which is why, I assume, Tyresmokes Espace is used solely for the taxi business and has no personal use? (including home to work etc)
Which is what my accountant has told me.
Because it is used solely for taxi work I can claim back the VAT on the purchase price, but am going to have to charge VAT when I sell it on - highly unlikey, 300000+ miles and something seriously wrong with it usually signifies a trip to the scrappy and a new vehicle.
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