VAT on cars: how much is it?

Updated on July 19, 2022

Are you stumped by the tax on automobiles? Find out if you’re eligible for a tax refund on your vehicle by reading our comprehensive guide on who pays VAT and how much it costs.
December 19, 2021 BUYACAR TEAM

Everything you buy, including cars, is subject to VAT, which is presently 20%. VAT is a government-collected tax, therefore a $18,000 Ford Fiesta includes $3,000 in VAT as part of the purchase price. If you’re exempt from VAT, there’s nothing you can do about it.

This is a huge savings opportunity for those who utilize their purchases for business purposes and who are registered for VAT, which can result in a significant reduction in the overall cost of a transaction. If you have a disability that requires you to use an adapted vehicle, you may be excluded from paying VAT.

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financing the purchase of a new or used car

In certain cases, it’s difficult to tell because of factors like whether you paid cash or with a loan, or even where the automobile is kept at night. What is VAT? How does it work? And how can you get it back? That’s what we’ve tried to answer with the help of a tax consultant from The VAT People.

A used automobile purchase may also require less VAT than a new car purchase, which is something to keep in mind. Another reason why secondhand cars are a better buy than new ones is because of this convoluted structure.

How it works, BuyaCar

Who pays VAT?

Regardless of whether a new car is purchased outright, financed, or leased, a 20% VAT fee is levied on the purchase price of all new vehicles. VAT-registered individuals and organizations may be able to recoup the tax, while disabled drivers may be able to avoid it altogether.

As long as the majority of the vehicle’s use is for business purposes, taxi drivers and driving instructors can normally claim back all of the VAT on a vehicle, although most other owners must establish that the vehicle will be used solely for business purposes unless they are leasing it.

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It is not permitted to use the vehicle for personal purposes, and the vehicle must not even be parked near an employee’s home, for example. This constrains your ability to recover VAT on a car purchase and is one of the reasons it’s tough to get all of your VAT back. See down for more information.

It’s a different story when it comes to pick-up trucks, which are considered light commercial vehicles (similar to vans) if they can carry more than 1,000 pounds of freight (the payload). A percentage of the tax can be recouped by VAT-registered buyers in this situation.

Those who need a wheelchair-adapted car for their own usage do not have to pay VAT on the purchase. Before making a purchase, you must comply with a few conditions and fill out a form. The following section has more information.

VAT on new cars

20% of the pre-tax price, plus any fees associated with registration and licensing, is used to calculate the VAT.

These are their names:

Getting it to and from the dealership after it’s been manufactured
Getting it ready for selling (checking it over)
supplying and installing vehicle identification plates
Options for supplying and installing
It’s listed separately on your bill but is due at the same time as the rest of the vehicle.

Find the best used car discounts by scouring all available listings.

Reclaiming VAT on new cars

You must be VAT-registered and meet severe eligibility requirements before you may claim the VAT on a new car in your taxes.

An “excepted car” is a vehicle that qualifies for a refund in this situation. The following are the three primary divisions:

The usage of a car solely for business reasons, such as a pool car, means that it should not be left overnight at a residential address or utilized to get to and from the office.
As a vehicle for driving lessons, taxi service or as a rental automobile.
In the following 12 months, a new car will be registered to a dealer and sold.

This vehicle is referred to as a “stock-in-trade.”
If you’re in the market for a pick-up truck, the rules are different. Below, you’ll find additional information.

VAT on discounted new cars

VAT is charged on new car deals that provide a discount from the list price. Taxes are cheaper since they are applied to the price after discounts and the previously indicated on-road and delivery costs.

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Reclaiming VAT on car leasing

If you’re VAT-registered and renting a car for business, you’ll be entitled to get back half of the VAT.

VAT refunds are meant to cover the business component of company cars’ mileage, which is based on research that shows personal use accounts for about 50 percent of the total miles driven.

In order to recoup all of the tax, you’ll need to have one of the vehicles listed above.

You can claim VAT back on lease payments because it is included in each monthly payment. The “business contract hire” rate, which excludes VAT, is what you’ll find when comparing leasing offers.

Reclaiming VAT on PCP finance

If you qualify for leasing, it’s more tax efficient, thus it’s difficult to get a refund on the VAT you paid on PCP contracts.

In PCP financing, you do pay VAT on the purchase of a new automobile, but it isn’t explicitly included in your monthly payments like it is with car leasing.. Your credit business takes care of the VAT for you, so you don’t have to worry about it.

It is Mercedes Finance’s intention to change the rules so that it pays the VAT charge monthly, rather than all at once, when customers make their installments.

Used automobiles with PCP financing available

Reclaiming VAT on pick-ups

As long as the payload (the weight of freight it can carry) exceeds 1,000 kilograms, a pick-up truck is considered a light commercial vehicle rather than a car. If this is the case, VAT-registered businesses should be able to claim VAT back on the portion of the purchase that is used for business purposes.

You should be entitled to reclaim 90% of the VAT on your return if 90% of your miles was incurred while conducting business on behalf of the company.

Pickup trucks, which may be used for both business and family purposes thanks to favorable tax treatment and special tax incentives for double-cab models, have become increasingly popular as company vehicles.

Deals on used pickup trucks

Buying a VAT-free car as a disabled driver

Because the vehicle is used solely for personal or domestic purposes, wheelchair users are exempt from paying VAT on automobiles with “permanent and substantial” adaptations such as steering wheel controls and ramps. Vehicles leased through the Motability program are included in this.

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An individual with a disability or someone close to them, such as a family member or caregiver can purchase the vehicle. One of the most important rules is that the vehicle can only be used to transport a wheelchair user or someone on a stretcher.

Wheelchair users are now limited to one adapted automobile purchase every three years, following concerns that the scheme was being exploited. In some cases, cars that have been stolen or written off are exempt from this rule.

The government’s website publishes all of the terms and conditions for receiving a VAT-free car as a disabled person.

In addition, you must fill out a form before purchasing an adapted car because VAT cannot be reclaimed once you’ve paid for the vehicle.

VAT on used cars

Private sales of automobiles are exempt from the application of value-added tax (VAT). There are two methods in which VAT can be added to the price of an item bought directly from a dealer:

Scheme for calculating the second-hand margin for VAT purposes In practice, this is the most usual manner to apply VAT because it is only applied to the difference between the purchase price of a car and the sale price.

The profit margin is divided in half to arrive at the VAT rate. The cost is included in the car’s purchase price rather of being itemized on the invoice as it would be if the customer were purchasing a new vehicle.

On the selling price, VAT is included. Some used automobile dealerships may tack on an additional 20% in VAT to the purchase price. Taxes are higher than under the second-hand margin arrangement, which is why this option is rarely adopted.

VAT pre-registered or nearly new cars

Assuming the automobile will be sold within 12 months of pre-registration, a dealership is effectively purchasing the vehicle and paying the VAT, which is then reclaimed under a stock-in-trade’ provision.

If you’re a private individual purchasing an automobile, you’ll be charged VAT.

Tax rates for company cars can be found here:
The comprehensive guide to purchasing a pick-up vehicle.