In every purchase we have, there is always a Value Added Tax or VAT. So, even for cars, there is a VAT which is usually 20% of the total price. The VAT is usually calculated with the price of the car. Buyers can get back the 20% in different circumstances and even lower the car’s price. VAT qualifying used cars are usually formerly owned for business use. If your car is VAT registered, you can take back the 20%.
If the used car you’ve bought is privately owned and ends up non-VAT qualifying, the VAT can’t be reclaimed or be restored. Usual non-VAT vehicles are individual cars used by one person, ambulance, prison vans, and more which are not for businesses.
Make sure to ask the individual or company dealer you’re purchasing your car to know if the car is VAT registered. If the car ends up being VAT registered, there is a way for you to cover that tax with a title loan. If your name is missing in the title, contact a loan agent to see how you can get a title loan with title not in my name.
If your car is not VAT qualifying, you can read up on Carplus finance on how the margin scheme works to account for VAT. You can know which cars are eligible for VAT and what are those non-qualifying ones.
How VAT Works on Used Cars?
If you’re planning to buy a used car, there are several terms you need to understand. First, you need to remember that some car dealers make a profit out of VAT. The dealers register the cars as a “demo sale” and not pay for the VAT and get bucks off the price. Be careful with the demo sale scheme to look for a VAT registered vehicle for your businesses.
Second, the dealer pays for the VAT but reclaims it as an input tax upon purchase. The input tax would be accounted for in the purchase price of the car.
Lastly, the buyer pays for the VAT, and the buyer reclaims it as an output tax upon sale.
To illustrate the situation on input and output tax, here is an example:
- A dealer is selling a used car in the UK with a price of £12,000.
- It has undergone the following for input and output tax.
- Purchase price of £11,000.
- The UK VAT reclaimed is calculated at a 7/47 VAT fraction with £1638.30.
- The total net purchase price is £9361.70 (£11,000-£1638.30).
- Sale price of £12,000.
- The VAT reclaimed is calculated at a 7/47 VAT fraction with £1787.24.
- The total sale price is £10212.76 (£12000-£1787.24).
- The total VAT paid by the UK dealer is £148.94 (£1638.30-£1787.24).
You can now imagine how the VAT is computed when you purchase a new car. The VAT computed above is also reclaimable. Make sure to ask the individual or company dealer you’re purchasing your car to know if the car is VAT registered.
Benefits of Non-EU (Export) Customers
If you export outside a car from the UK, it is a big advantage with the savings you can make. Buying a car from the UK will give you a 20% reclaimed VAT, and you can pay less for the car.
For example, the sale price of the car you want is £48,000. The VAT of the car is £8,000. You will be able to buy the car in the UK at £40,000 and save up to £8,000. Exporting VAT qualified cars is quite beneficial, and you can save money and get a good deal with the car sold.
Vehicles for VAT Registered Individual
The implications of VAT are different for new cars and used vehicles.
For new cars:
- The total price has the VAT added.
- The dealer you bought the car from will pay the VAT to Customs & Excise.
- You can reclaim the VAT with a VAT qualifying car.
- If you plan to sell the car, the VAT should be added to the selling price and must be paid in the Customs & Excise.
For used cars:
- If you buy the car that the previous owner did not reclaim the VAT, your vehicle will be considered a non-VAT qualifying vehicle or a ‘Margin’ car.
- Your purchased vehicle is a VAT qualifying used car, and then you can claim the VAT after the purchase.
Easy execution of the difference of buying a VAT qualifying used car can be observed in the following example: A company buying a new car, the total price is £10,000. The total price already includes the VAT. The agent of the company doesn’t need to go to Customs & Excise just to pay for VAT. The company doesn’t have to go through a number of processes to register the car for VAT. Then, the company is eligible to reclaim the VAT.
On the other hand, a company is buying a used car for £12,000. The total price also includes the VAT if the previous owner is selling the car that is VAT qualified. The company is eligible to reclaim the VAT once they bought the car.
Vehicles for Non-VAT Registered Individual
The implications of having a non-VAT registered vehicle for new cars and used ones are different.
For new cars:
- You buy a new car with VAT included in the total price.
- Your dealer will pay the VAT to Customs & Excise.
- Your car is already not qualified for VAT, and then VAT will not be charged. The car you have will be under a non-VAT qualifying vehicle.
For used cars:
- You buy a used one from a dealer or an owner without VAT.
- If you’re buying a car where the previous owner did not reclaim the VAT, your vehicle will be considered a “non-VAT qualifying” vehicle or a “Margin” car.