VAT on cars when buying or selling

Overview of VAT on Cars

Navigating the complexities of VAT on Cars expenses can be challenging for businesses in the UK. This guide provides an in-depth understanding of the VAT rules applicable to sell my car (private) or business Cars, from purchasing to selling and maintaining records. Whether you’re a business owner, auto traders, or individual person, this information will help you manage VAT on your cars for sale more effectively.

What is VAT on Cars Expenses?

Value Added Tax (VAT) is a consumption tax applied to most goods and services in the UK. When it comes to used car or new car expenses, VAT rules are particularly complex. Understanding these rules is crucial for businesses to ensure compliance and optimize their VAT recovery. This guide will cover:

• Definition of a car for VAT purposes.
• Treatment of Cars expenses incurred by businesses.
• Rules for reclaiming VAT on different types of Cars and related expenses.
• Necessary accounting and record-keeping practices.
• Exceptions and special cases.

What Defines a Car for VAT Purposes?

For VAT purposes, a vat qualifying car or motor is defined as any motor vehicle with three or more wheels, typically used on public roads, and primarily constructed or adapted for carrying passengers. However, there are several key exceptions:

• Vehicles designed to carry one person or 12 or more people.
• Caravans, ambulances, and prison vans.
• Vehicles over 3 tonnes in unladen weight.
• Special purpose Cars such as ice cream vans and hearses.
• Vehicles with a payload of one tonne or more.

Note: Understanding this definition is critical because it determines how VAT is applied and reclaimed on such Cars.

Claiming VAT on Car Purchases

In general, VAT on the purchase of a car even on electric vehicles is not recoverable unless the vehicle is used exclusively for business purposes without any private use. However, there are specific situations where VAT can be reclaimed:

• Stock in Trade: If the vehicle is part of the stock in trade of a motor dealer or manufacturer.
• Commercial Use: If the vehicle is primarily used as a taxi, for driving instruction, or for self-drive hire.

VAT When You Buy a Car to Sell On

For VAT-registered motor dealers, reclaiming VAT on Cars bought to sell is straightforward. When you purchase a vehicle, the invoice will detail the VAT amount. This VAT can be reclaimed on your next VAT Return. However, to ensure compliance, it’s crucial to maintain accurate records of these transactions. If the Cars are cars, they must be intended for sale within 12 months to reclaim the VAT.

VAT on Imported Cars

When importing Cars into the UK, businesses must use the Notification of Vehicle Arrivals (NOVA) system within 14 days. There are exceptions to this requirement:
Cars with engines below 49cc or 7.2 kilowatts (about 9.65 horsepower) if they’re electric.
Cars using a secure registration scheme.
If circumstances change and you can no longer use a secure registration scheme, you must use NOVA within 14 days of the customer informing you.

Paying VAT on Imported Cars

VAT must be paid through customs for Cars imported from outside the UK to Great Britain or from outside the EU to Northern Ireland. This VAT can be reclaimed on your next VAT Return. For Cars brought from the EU into Northern Ireland, account for it as an ‘acquisition’ on your VAT Return.

VAT on Cars You Do Not Sell

Businesses can reclaim VAT on Cars used for:

• Daily rental to customers.
• Test drives.
• Courtesy cars for the business.

However, if a vehicle is used privately, such as by an employee on weekends, VAT must be paid back to HMRC. Refer to section 25 of VAT Notice 700/57 for details on calculating the amount of VAT to pay.

Margin Scheme for Second-Hand Cars or VAT on Used cars

When dealing with second-hand Cars, different VAT rules apply on used cars if you use a margin scheme. This scheme allows you to account for VAT on the difference between the purchase price and the selling price of the vehicle, rather than the full selling price.

When You Can Use the Margin Scheme

The margin scheme can be used for eligible second-hand Cars. A vehicle is considered second-hand if it has been driven on the road for business or pleasure purposes or is suitable for further use.

When You Cannot Use the Margin Scheme

The margin scheme cannot be used for:

• New Cars.
• Imported Cars, including those collected on your behalf.
• Cars purchased on an invoice showing VAT separately.
• Category A and B write-off Cars or those subject to the End Of Life Directive.
• New means of transport purchased from EU countries into Northern Ireland.
• Cars bought from registered dealers in EU countries supplied to Northern Ireland not under a margin scheme.
• Cars already sold under the normal VAT rules.
• Cars where VAT was reclaimed or was entitled to be reclaimed.

Steps for Using the Margin Scheme

1. Check the rules: if you’re buying or selling a second-hand vehicle.
2. Work out the margin: Calculate the purchase price and selling price, then subtract the purchase price from the selling price to get the gross margin. Multiply the gross margin by 1/6 to determine the VAT due.
3. Keep records: Maintain a stock book that tracks each item sold under the margin scheme individually. Keep copies of purchase and sales invoices for all items.

Special Considerations

Goods on Sale or Return: Include details of any Cars supplied to you on a sale or return basis in your stock book, noting dates of transfer, sale, or return.
Acting as an Agent: If selling a vehicle on behalf of a third party and issuing an invoice in your name, account for any output tax on the sale.
Invoices in Foreign Currencies: Convert foreign currency prices into sterling using the current exchange rate for margin calculations.

Record Keeping

Keeping accurate records is essential when dealing with VAT on Cars expenses. This includes maintaining normal VAT records and additional records for Cars bought or sold under the margin scheme. For Cars supplied on a sale or return basis, detailed records of transfers and sales are necessary.

Conclusion

Understanding VAT on Cars expenses is crucial for businesses to ensure compliance and optimize their VAT recovery. By following the rules outlined in this guide, businesses can manage their Cars expenses effectively, reclaim eligible VAT, and maintain accurate records. For more detailed information and specific scenarios, consult HMRC’s official guidance or seek advice from a tax professional.

How ADAM Accountancy Can Help

Understanding VAT on car purchases and sales is essential for compliance and maximizing VAT recovery. ADAM Accountancy offers expert guidance and services to help you navigate these complexities. Our services include:

• VAT Consultation: Personalized advice on reclaiming VAT for your specific circumstances.
• Record Keeping Assistance: Ensuring your records meet HMRC requirements.
• NOVA Compliance: Helping you navigate the Notification of Vehicle Arrivals system.
• VAT Returns: Assistance with filing accurate and timely VAT returns.

For more specific scenarios and detailed advice, consult HMRC’s official guidance or contact ADAM Accountancy for expert assistance.
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