What is a VAT
Qualifying Car?

What is VAT?

Value Added Tax is the tax applied to goods and services by HM Revenue and Customs (HMRC). VAT for a UK car is 20%. This is included in the advertised price of a car. Buyers can reclaim the VAT for their car and reduce the price by 20% under specific circumstances. Dealers must pay VAT on profits from qualifying cars.

What does VAT Qualifying mean?

A car is defined as VAT-qualifying if it is either a brand-new car or has been owned solely by a business for business purposes throughout its lifetime. A VAT-registered individual who purchases a VAT-qualifying car for business purposes can reclaim VAT on the purchase, provided they have the proper documentation. You may come across the term “gross VAT qualifying,” which means the vehicle has been registered to a business, so the VAT is still reclaimable.

What does non-VAT qualifying mean?

Any car or vehicle that has been privately owned at any point in its lifetime is non-VAT-qualifying. The VAT is no longer reclaimable, and the VAT-qualifying status cannot be reinstated, regardless of who buys it.

VAT Explained

What is a margin car?
A margin car refers to VAT margin cars. A VAT margin car is a car that is non-VAT-qualifying. This is because a previous sale of the vehicle included VAT. Once VAT has been paid, the car becomes a non-VAT-qualifying vehicle, and this cannot be reversed during the vehicle’s lifetime.

What is a VAT-deductible car?
The term “VAT deductible” refers to a car that is still VAT-qualifying.

VAT on cars: how does it work?
VAT is charged when a car is sold to a private individual. It is charged at 20%, which is equivalent to one-sixth of the car’s price. VAT isn’t usually broken down on a car advert. There are two methods to calculate the VAT that is being charged.

• Advertised price divided by 6 = the VAT being charged
• Advertised price divided by 1.2 = the car’s sale price without the VAT

VAT on new cars
All new cars are begin life VAT qualifying. If they are registered to a UK VAT-registered business, they remain VAT qualifying. But if they are registered to a private individual they become non-VAT qualifying.

VAT on used cars
A used car or second hand car will also be VAT qualifying if it has remained registered to businesses throughout its lifetime. It becomes non-VAT qualifying once it is registered to a private owner and the VAT cannot be reclaimed. It is fairly common to find cars up to 4 years old that are still VAT-qualifying. Although older the car you are looking to buy, the fewer there will be to choose from. 

VAT on Pre-registered cars
A pre-registered car is a brand-new car that has been owned by a car dealership or a leasing company. This means it will be VAT-qualifying, as it is owned by a business, not a private individual.

VAT on lease cars
If you are buying an ex-lease car from a business, then there’s a good chance it will be VAT qualifying because it was purchased for business use.

VAT on company cars
Company cars are often VAT qualifying if they have been owned by the business and not registered to an individual in the business. Watch out for dealership cars as they may have registered the car to a specific manager in their team. This changes the car’s status to non-VAT qualifying.

VAT on electric cars
In the UK an electric car is not exempt from VAT. The same rules apply to electric cars as petrol and diesel cars. New electric cars are VAT-qualifying until they are sold to a private individual. They retain their VAT qualifying status whilst they are owned by a business.

VAT on commercial vehicles
VAT on vans, pickups, trucks and lorries works in the same way as cars.  This also applies to motorhomes and combi-vans (i.e. vans with rear seats).

How to Check if a Car is VAT Qualifying

There are some important ways to check if a car is VAT Qualifying.

A vehicle is VAT-qualifying if:

• It has only been owned by VAT registered businesses
• The invoice is a valid VAT invoice with the VAT shown separately
• VAT was charged and then legitimately reclaimed

Ex-demonstrator vehicles aren’t always VAT-Qualifying, so it’s vital you ask the dealer to verify the car’s VAT status.

A vehicle is no longer VAT-qualifying if it has been privately owned at any point in its life.

Browse VAT-qualifying cars for sale today in the UK in our stock list. Prestige VAT-qualifying cars in one easy place.

What Does a VAT Saving Look Like?

Take a look at a real example of a VAT saving on a BMW IX

Savings for car export customers buying VAT-qualifying cars
Buying a VAT-qualifying car for export can give you the biggest single saving, making it the holy grail of car exporting.

Overseas buyers can save 20% VAT off the advertised price of a VAT-qualified car. This is because when a VAT-qualifying car is exported permanently outside the UK, the VAT paid on it can be reclaimed from HMRC. It is important to provide a VAT invoice to verify the vehicle’s VAT registration status and VAT eligibility during the sale process.

If you are buying a UK car for export, reclaiming the VAT on a VAT-qualifying car is the single biggest saving you can make. To illustrate, the purchase price of a VAT-qualifying car advertised at £36,000 drops to £30,000 because the £6,000 VAT is reclaimable from HMRC upon export from the UK.

Benefits of VAT-qualifying cars for UK customers
VAT savings aren’t just for exporters. UK business owners who are VAT-registered can also reclaim the 20% VAT when buying a VAT-registered car for business purposes. This is an ideal way to buy company cars, commercial vehicles or fleet vehicles. Additionally, the VAT implications for VAT-registered individuals include the obligation to account for VAT on purchases and to maintain proper documentation for tax purposes.

Summary of Benefits:

• Save 20%; the single biggest saving in your transaction.
• Best value to purchase commercial or export vehicles.
• Ideal for export; making exports very affordable.
• Unmissable cost savings for your business.

How do I reclaim the VAT when I export a car from the UK?
It’s vital you understand how you can reclaim the VAT before you buy your VAT-qualifying car. This video will help you to understand the options available to reclaim your VAT and how to do that risk-free.

Please be aware that some companies will ask you to pay the VAT upfront and agree to return the money when the reclaim is successful. This is risky and unnecessary. We won’t charge you the VAT. Our price will be the net of VAT price, so you can reduce your financial outlay and have no risk to worry about.

Who can claim the VAT back?
Private individuals are no longer allowed to reclaim VAT. Even if you are visiting the UK temporarily, you cannot reclaim the VAT on your purchases. A UK VAT-registered person needs to reclaim the VAT for you. This needs to be done correctly, so we would advise that they are experienced with VAT reclaim on cars. If you are buying a car from a non-export dealer, they are very unlikely to reclaim the VAT for you. If you have found your perfect car at a non-export dealer, then get in touch, and we will help you buy and export the car VAT-free.

Personal Export Scheme
Find out about the Personal Export Scheme if you are hoping to buy a VAT-qualifying car to drive in the UK and Europe and export it up to 12 months after buying your car.

VAT Relief for Adapted Cars
VAT relief is available for adapted cars that are modified for use by individuals with disabilities. To qualify for VAT relief, the following conditions must be met:

Specific Adaptations: The car must be adapted to meet the specific needs of the individual with a disability.
Business Use: The car must be used for business purposes only.
Usage Period: The car must be used for at least 6 months.
VAT Registration: The individual or business purchasing the car must be VAT registered.

VAT relief can be claimed on the purchase price of the adapted car, up to 20%. It’s essential to note that VAT relief is only available for adapted cars that meet the above conditions, and not all adapted cars will qualify.

It is important to be a VAT registered seller when purchasing or selling a VAT qualifying vehicle to reclaim VAT and maintain the vehicle’s VAT qualifying status.