How to avoid VAT when buying a van for business

Updated on June 5, 2022

To paraphrase Del Boy from “Only Fools and Horses,” he was an outspoken proponent of the idea that “no income tax, no VAT” should exist.

We’re not advocating that you adopt Del Boy’s methods or pay with a suitcase full of used fivers, but rather, we’re outlining a strategy for staying within HMRC’s guidelines while avoiding VAT on a commercial vehicle acquisition.

VAT on a van for business

As a business owner, you should know that you may have to pay an additional 20% on top of the advertised price for a new or used van. In order for a vendor to charge you 20% VAT, they must be registered as a VAT business themselves.

However, if you were purchasing from a different type of corporation, or a private individual, the situation could be different. A VAT-registered firm must also charge VAT to you. If you’re selling a van privately, this isn’t likely to be the case.

A VAT of 20% is a good place to start when figuring out how much your next VAN will cost you in total. You can avoid the additional VAT expense in a number of ways, including not having to pay it at the time of purchase or reclaiming it after the purchase.

Your business must be VAT-registered in order to claim any owed VAT refunds. If you are not VAT-registered and exclusively use the vehicle for business purposes, you cannot claim. The HM Revenue and Customs (HMRC) provides information on how to claim VAT on motor vehicles and commercial vehicles.

Related: Benefit In Kind: When does a van become a company car?

Buy a van from a non-registered seller

It is illegal for a firm or individual selling a van to charge VAT if they are not registered for VAT. It would be illegal to charge. So it’s important to ask if a seller is VAT-registered when you first meet them.

Ask for a VAT invoice if they claim to be registered. Reimbursing you for VAT can be done if you give their registration number in this document

Pay VAT on part of the purchase price

The VAT margin plan is used by some VAT-registered dealers. The difference between what they paid for the vehicle and what they sell it for is all that they have to charge VAT on.

You will only be charged and pay HMRC 20% VAT on the difference of £1,500 if a dealer purchases a vehicle for £9,000, then sells it for £10,500. If your ticket costs £10,500, you will save £300 in VAT instead of £2,100.

Despite this, under the VAT margin plan, the dealer must not supply you with a VAT invoice and you cannot attempt to reclaim the VAT from the seller. As we’ll see in a subsequent case, this may not be a significant advantage.

company van

Buy a van through a limited company

Buying a new or used vehicle through a VAT-registered company is tax-deductible. It must be a van, however, and not any other vehicle type. Even if you utilised it for business deliveries, an estate automobile would not be considered a van. Additionally, the car can only be utilised for work-related activities. Tax and National Insurance charges will be levied on any use for private purposes.

A VAT-registered seller will bill you for VAT and you can return the money you spent. As an added bonus, you can use your capital allowance claim to lower your corporate tax burden.

Non-registered sellers aren’t eligible for VAT refunds, although they are eligible for corporation tax deductions.

Related: How to pay Corporation Tax: A guide to rates & deadlines

 

Related: UK business mileage allowance and mileage allowance relief

Do a deal on price

As we pointed out in the section titled “Pay VAT on part of the purchase price,” purchasing under the VAT margin scheme may not always be advantageous. However, as this example indicates, both sides can benefit from negotiating a different price with the seller. Make sure you have a calculator on hand if you decide to go this route.

For £16,000, the dealer is offering a van. Because they paid $13,000 for the item, their profit margin was $3,000. You’ll have to pay VAT of £600, which you can’t get back through the VAT margin programme.

The dealer will also have to pay HMRC the VAT collection of £600, which effectively lowers their profit to £2,400.. In contrast, if you ask a dealer to sell you a vehicle outside of the VAT margin plan, you and the dealer will both benefit.

To put it another way, if the selling price decreases to £15,700 + VAT, you will pay $18,840.

You can then reclaim the whole amount of VAT – £3140 – and save money on the total cost.

The dealer, on the other hand, stands to gain £15,700 after paying VAT to HMRC. After paying £600 to HMRC under the VAT margin programme, they would have only been able to keep £15,400 of their earnings.

Support from Accounts and Legal

The following is a basic description of how to avoid VAT while purchasing a van. You may rely on our team of expert tax accountants for guidance on the financial ramifications of purchasing a vehicle for your business or for confirmation that your business is in compliance with HMRC’s VAT requirements.

Please call us at 0207 043 4000 or email us at [email protected] for additional information. A quick and easy online accounting quote is also available right here.

Read More: Tax Debate: Company car or car allowance?