BIM31545 - VAT: motor cars

VAT incurred on the purchase of motor cars that are made available for private use is not deductible input tax unless the motor car is predominantly for use as a taxi, self-drive hire car, or for driving tuition. A ’motor car' is defined by Article 2 of the VAT (Cars) Order 1992 No.3122. You should ensure that the VAT on such cars is not charged to revenue. For capital allowances purposes the cost of the car should include the VAT.

When the car is disposed of by a registered trader, VAT is payable in full if input tax has been reclaimed. Where there has been no input tax deduction VAT is payable on the difference, if any, between the purchase price and the selling price. Where exceptionally this happens, the sale price exclusive of VAT is the amount to be taken into account for capital allowance purposes.