VAT on cars

I am a VAT registered business and we are about to update our fleet of cars. Do I have to charge VAT on the sale of the old cars?

1st June 2013

The general rule of thumb is you charge VAT on the sale where you suffered VAT on the original purchase of the car and were able to recover it.

However, most businesses are not able to recover the VAT on purchases of cars, unless the cars are:

  • Stock for a motor manufacturer or dealer
  • Going to be used as taxis, driving instruction vehicles or self-drive hire cars
  • Will be used exclusively for business purposes (such as pool cars under certain conditions)

You may have purchased the vehicle from a private individual or non-VAT registered business, in which case you won’t have been charged any VAT on the purchase. In this scenario, you probably only need to charge VAT on any profit you make on the sale (i.e. the difference between the sales price and the original purchase price) but there are some criteria to adhere to in order to apply this. In reality, most cars are sold at a loss and if this was the case, no VAT would arise in this scenario- again, subject to certain criteria being met.

VAT and motor-related transactions are a complex area as there are specific rules that do not apply to any other instances. I would therefore encourage you to seek professional advice with your local TaxAssist Accountant before you sell or buy any cars to make sure you don’t make any errors or are left out of pocket.

By Jo Nockels

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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