VED, VAT, and lease company

[blank]

I have a lease car, there is a clause where they can charge me for any increase in VED over the term.

It looks like it's gone up by a fiver, so they've sent me an invoice.

However it's for £5+VAT, so £6 total.

I can probably scrape together the extra £1 but I'm curious, as VED is not subject to VAT, should they be charging it? Do they HAVE to charge it as they're VAT registered? Could they choose not to charge it if they wanted to?

I guess the main question is how does VAT work when passing on costs for items without VAT?

Thanks

[Butter Face]

I presume that they are not actually charging you directly the £5 increase, but are instead increasing the rental by £5(+VAT) pa. seems logical, stupid but logical.

[deggles]

Interesting one, I think they have to charge VAT on everything unless it qualifies as a 'disbursement', I suspect it doesn't as the rules are quite strict.

Had a similar thing recently where the garage charged VAT for doing an MoT on my dad's car. They didn't actually do it themselves on-site, they took it to somewhere nearby so I guess they were entitled to charge VAT on the service provided!

[blank]

Butter Face said:

I presume that they are not actually charging you directly the £5 increase, but are instead increasing the rental by £5(+VAT) pa. seems logical, stupid but logical.

That would make sense if it said something like "additional annual rental charge due to increase in Road Fund Licence" but the invoice very clearly says "Road Fund Licence" and mentions an increase from £140 to £145.


I'd never considered the MOT thing, that must be quite common as loads of places outsource them.

[PF62]

blank said:

I have a lease car, there is a clause where they can charge me for any increase in VED over the term.

It looks like it's gone up by a fiver, so they've sent me an invoice.

However it's for £5+VAT, so £6 total.

I can probably scrape together the extra £1 but I'm curious, as VED is not subject to VAT, should they be charging it? Do they HAVE to charge it as they're VAT registered? Could they choose not to charge it if they wanted to?

I guess the main question is how does VAT work when passing on costs for items without VAT?

The VED isn't your liability, but theirs - they own the car not you. So it isn't a disbursement, something which is your liability and they are paying on your behalf when it wouldn't be subject to VAT, so it is liable.

deggles said:

Interesting one, I think they have to charge VAT on everything unless it qualifies as a 'disbursement', I suspect it doesn't as the rules are quite strict.

Had a similar thing recently where the garage charged VAT for doing an MoT on my dad's car. They didn't actually do it themselves on-site, they took it to somewhere nearby so I guess they were entitled to charge VAT on the service provided!

If the garage charged your father exactly the amount for the MOT they had been charged by the garage that did it, then they can treat it as a disbursement and don't charge VAT.

However if they charged your father more than the amount they were charged, then it isn't and they have to charge VAT on the whole amount they charged for the MOT (not just their 'profit').

[rfoster]

That's normal - they are providing you with a 'service' by supplying the road fund licence so on that basis it's subject to VAT (you can reclaim the VAT if you're VAT registered.)

[PF62]

rfoster said:

That's normal - they are providing you with a 'service' by supplying the road fund licence so on that basis it's subject to VAT (you can reclaim the VAT if you're VAT registered.)

Or more likely 50% of the VAT.