Looking to buy a new or used car in the UK? You might want to know if VAT is applied to both. It will depend on how the car is bought to answer this question. VAT, which is charged at a normal rate of 20% on new cars, can make buying a car a lot more expensive. Want to know more about how VAT works for cars? Read our full guide to find out if and how much VAT you can claim back on your VAT-eligible car.
How Much Is VAT on a Car?
At the moment, value-added tax (VAT) in the UK is set at 20% of the price of almost everything, including cars. Since VAT is a tax that you pay to the government, the price of a Corolla that costs £18,000 includes £3,000 in VAT. Aside from not having to pay VAT, there’s not much you can do.
People who are registered for VAT and buy things for their businesses can save a lot of money this way. When you claim back VAT, the total cost of your buy can go down by a lot. In some situations, people with disabilities who need specially equipped cars may also not have to pay VAT.
Also, remember that when you buy a used car, you usually won’t have to pay VAT. A complicated method is used to figure out how much used cars are worth, which is another reason why they are a better investment than new ones.
Who pays VAT on a car?
Almost all new cars are subject to 20% VAT, whether they are bought directly, leased, or financed. People and companies that are registered for VAT may be able to get the first tax back, and disabled drivers may not have to pay it at all.
Taxi owners and driving instructors can often get all of their VAT back on a new car if they can show that it is mostly used for their business. Most car owners have to prove that the car will only be used for work, unless they rent the car.
Not only is private use of the car not allowed, the car itself must not even be available for personal use. This could mean that it is parked at an employee’s house. Because of this, it is harder to get a full return for the VAT you paid on a car because you can only do it at certain times.
On the other hand, pickup trucks that can carry more than 1,000 kg are considered light commercial cars, which is the same group as vans. Buyers who are registered for VAT can get some of the tax back in this case.
People who need a wheelchair-accessible car for daily use do not have to pay VAT when they buy a car. Some requirements and forms need to be filled out before the buy can happen.
When can I claim back VAT on my car purchase?
Anyone who is registered for VAT and is qualified to do so can claim back the VAT they paid when they bought a car or any accessories that came with it. But the car has to be used only for work-related tasks; it has to be a real company car that only workers can use.
You may also be able to get all of the VAT back on new cars that are mostly used.
- as taxicabs
- for driving lessons
- for self-drive rentals
When is a car used exclusively for business purposes?
If someone isn’t using a car for personal reasons, it means that the company is only using it for business (unless it’s for commercial leasing or hire). This includes getting to and from work (unless it’s only short). Proof, like the employee’s job contract, must be given to show that it is a car used for business travel. Not many people will be able to pass this test.
Is There VAT on a New Car?
VAT is calculated as 20% of a car’s price before taxes, plus any costs tied to getting the car on the road. These are some of the costs that come up:
- Moving it from the plant to the store
- Getting it ready to sell
- Providing and putting up licence plates
- Different choices for installation and provisioning
VAT will be shown on your bill separately, but it needs to be paid for at the same time as the car.
Is There VAT on a Second Hand Car?
VAT is not charged on cars bought and sold separately. When you buy a used car from a dealer, on the other hand, VAT is added in one of two ways:
- A lot of people use the VAT second-hand margin plan to tax cars because it only taxes the profit an auto dealer makes, which is the difference between how much they paid for the car and how much they sell it for. The VAT rate is found by taking one-sixth of the profit margin. While it is part of the car’s price, it is not shown on the bill of sale like it would be if the buyer were buying a new car.
- VAT on the selling price—Some people who sell used cars may add 20% VAT to the end price. Most of the time, this doesn’t happen because it costs dealers more than the second-hand margin plan.
When can I claim back VAT on my car purchase?
Here are some of the different situations in which VAT can be claimed.
VAT on new cars that are on sale
VAT will be added to deals on new cars that are sold at a lower price than what was promoted. Since the tax is added to the price after the discount, on-road costs, and delivery costs that were already stated, it will go down.
VAT back on rented cars
If you are registered for VAT and borrow a car for business use, you can usually get back half of the VAT.
The VAT refund is meant to cover the business use. This is because study shows that about half of the miles driven in business cars are for personal reasons.
Since tax is added to each monthly payment, it is easy to get back VAT on lease deals. This is why the “business contract hire” price without VAT is usually shown in lease deals.
VAT refund on PCP loans
It’s not common to get back VAT on PCP finance deals because, if you qualify, leasing is better for your taxes.
If you buy a new car through PCP, you will have to pay VAT, but it’s not part of your monthly payments like it is when you lease a car. In the end, the loan company charges you VAT up front, and this tax is added to your deposit and monthly payments.
Get Back VAT on Pick-Up Trucks
A pickup truck is not a car if it can carry more than 1,000 kg of cargo. It is called a light business vehicle. A business that is listed for VAT should be able to claim the VAT for the part that was used for business.
This means that if you drive your car for work 90% of the time, you can claim 90% of the VAT back on your tax return. Pickup trucks have become more popular as business cars that can also be used for family trips. This is because of their tax status and the tax breaks for company cars that apply to double-cab vehicles.
Buying a car without paying VAT as a disabled driver
Wheelchair users who need a car with “permanent and substantial” changes, like steering wheel controls or a ramp, are not required to pay VAT on cars as long as they only use the car for their own personal or domestic use. This also goes for cars that are leased through the Motability plan.
If the handicapped driver isn’t able to drive, a parent, child, caretaker, or other family member can buy the car for them. The main purpose of the vehicle must be to help someone in a wheelchair or who needs to be moved on a stretcher.
People in wheelchairs can only buy one modified car every three years because the system was being abused, according to reports. Owners may not have to follow this rule if their cars are stolen or written off.
The government’s website lists all the rules for handicapped people who want to get a car without paying VAT. Since you can’t get back VAT once you’ve bought an adapted car, you need to fill out a form before you buy it.
Get back VAT on cars that are already registered or are almost new
When a car is pre-registered, the seller buys it and then gets the VAT back under the “stock-in-trade” rule, which means they expect to sell the car within a year.
VAT is added to the price when a private customer buys the car.
Can VAT be claimed back for any other expenses?
Taxes on fuel can be claimed back if the car is only used for work. If the car is used for both business and pleasure, the VAT cannot be recouped. You can get the VAT back on fuel in a number of ways. For help figuring out the best way for your business to get it back, talk to a professional. You can claim other costs, like repairs, care, and off-street parking. But the business must pay for these things and use them for business.
How to check if VAT has been paid on a vehicle?
If a person or business that is registered for VAT sells you something and charges VAT, they have to give you a statement during the sale that shows how much VAT they charged (either added on or included). On the bill, there must also be their VAT registration number. Take a look at some of the papers you have from other purchases.
It is needed for stores that sell things to customers to show you the price you will pay. If the store is VAT registered, the price must include VAT, which is why you might not always be aware that you are paying VAT. If a business is listed for VAT and mostly sells to businesses, they can list prices that do not include VAT, but they must also say that VAT will be added. The price they give you will be the price you pay, since they couldn’t claim VAT back on a work car that wasn’t registered for VAT when they bought it.
If a VAT-registered business is selling you a car, they can show you prices that don’t include VAT as long as they tell you that the VAT will be added. After all, it’s a van, which is a business car.
Quick Wrap-Up
To sum up, if someone buys a new car for personal use, they will have to pay VAT.
If you buy a used car from a business, you may still have to pay VAT, based on how the business calculated it. The second-hand margin plan says that most car dealers charge VAT on their profits. Some charge it based on the cost of doing business. It is based on how they keep their notes.
Car dealers don’t have to tell buyers about the way they figure out VAT, but they do have to tell HMRC. It is against the law to tell or tell a customer how much of the price is VAT.
