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If you're a VAT-registered car dealer it can be difficult to establish the correct VAT position when you buy new vehicles for resale or for other purposes, such as demonstrator or courtesy cars. Generally you'll be able to reclaim the VAT - but you'll also need to account for VAT if you make these vehicles available for private use.
The VAT position when you resell a used vehicle can also be affected by various factors.
So it's very important to be aware of and follow the VAT rules. You'll need to keep the right stock records too so the correct amount of VAT is charged when a vehicle is sold.
This guide explains the VAT position when you buy new or used vehicles for resale. In this guide the term 'vehicle' includes:
Where there are exceptions for a particular type of vehicle, these are highlighted. Otherwise the information in this guide applies to all types of vehicle.
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As a dealer you'll normally be able to reclaim the VAT shown on the invoice when you buy vehicles for resale. If the vehicles are cars you'll only be able to reclaim the VAT in full if you mean to resell them within 12 months of the date when they were supplied, acquired from another European Union (EU) member state or imported from a country outside the EU. Cars that you plan to resell within the next 12 months are referred to as your 'stock in trade'.
You can use stock in trade cars in your business temporarily - for example as demonstrator or courtesy cars - or even make them available for private use. So long as you still intend to sell them within the next 12 months they'll still count as stock in trade.
You might get a bonus from your vehicle supplier - perhaps because you've met a sales target. This sometimes counts as a discount from the original price you paid for a vehicle. If so you'll need to adjust the amount of input VAT you've reclaimed.
Some of the new cars you offer for sale may not actually belong to you. They'll have been supplied by a vehicle manufacturer or other supplier on a sale or return (SOR) basis. Although you may have paid some money when they were delivered they're still owned by the supplier. For VAT purposes no tax point has been created - no supply has taken place - and there will be no VAT for you to reclaim. The VAT doesn't become due until you've taken over ownership - or 'appropriated' the car - probably just before you sell it or decide to use it as a demonstrator. You will get an invoice from the supplier showing VAT when you appropriate the car.
If you buy on a SOR basis you might have to pay your supplier a 'stocking charge' until you appropriate the cars. Generally your supplier will set a time limit on how long you can stock the car before you have to appropriate it. The stocking charge is standard-rated for VAT purposes and you can reclaim the VAT on it in the normal way.
Instead of buying on a SOR basis, you might take ownership of the cars from the outset and your supplier might offer you a loan or credit facility to help pay for them. This charge is called 'stocking finance' and is exempt from VAT - there won't be any VAT shown on the invoice and so there's nothing you can reclaim.
If you buy new vehicles abroad and plan to resell them in the UK you'll need to register them if you intend to use them on the road or your customer requests that the vehicle is licensed and registered when they take delivery. If you're approved by the Driver and Vehicle Licensing Agency (DVLA) or the Driver and Vehicle Agency (DVA) in Northern Ireland you'll be able to use one or both of the DVLA or DVA secure registration schemes. The two schemes are the Automated First Registration and Licensing (AFRL) system and the Secure Registration Scheme (SRS).
If you're not approved to use these facilities you'll need to make a Notification of Vehicle Arrivals (NOVA) notification to HM Revenue & Customs (HMRC) within 14 days of the vehicles arriving into the UK before you can register them with the DVLA or DVA. The quickest and easiest way to make your notification is online using HMRC's NOVA online service.
You can also ask a tax agent, adviser or a freight forwarding or shipping agent to make a notification on your behalf - but they must be formally authorised to act for you.
Please note: If you intend to use the SRS or AFRL to register a vehicle but subsequently change that intention before the vehicle is registered you must make a NOVA notification within 14 days of that change of intention. If you are informed by your customer of their change in intention for the vehicle you must make the notification within 14 days of being informed.
If your business is already signed up to use VAT online you can access and use NOVA online immediately. To make a notification you, or your agent must login to your HMRC Online services account with the User ID and password that is used for your VAT online services, for example when submitting your VAT Return. NOVA online will be listed as a service you can access from the 'Your HMRC services' page.
If your business isn't signed up to use VAT online, for example because you use an agent, bookkeeper or accountant to submit your VAT returns online, then you must sign up for VAT online before you can access and use NOVA to make notifications directly on behalf of your business.
If your business has already enrolled for other online services such as Self Assessment online or PAYE online for employers, you'll need to add VAT online to the services you use before you can make a NOVA notification on behalf of your business.
Please note: If you don't follow this process, HMRC will not recognise you as a VAT registered business and you'll have to pay any VAT due on your vehicle purchases immediately rather than account for the tax on your next VAT Return.
If your vehicle is purchased within the EU and does not fall within the margin scheme you must account for the VAT on your next VAT Return. The NOVA online service will calculate the VAT due. You must enter this figure in Box 2 of your return. You'll need to account for VAT on the full selling price when you sell the vehicle.
If your vehicle is purchased outside the EU you must pay the VAT (and any other duties) to HMRC at the time it is imported into the UK. You can then claim the VAT paid as 'input tax' when making your next VAT Return provided you have a copy of the C79 monthly VAT import certificate. You cannot reclaim the duty. You'll need to account for VAT on the full selling price when you sell the vehicle.
You can apply to HMRC to use the Simplified Import VAT Accounting (SIVA) Scheme. This reduces the financial guarantees you have to give if you want to defer the payments of import VAT and import duty.
You'll be able to reclaim the input VAT if you buy a vehicle - including a car - for:
But you'll need to pay output tax to HMRC if you make the vehicle available for private use. For example, you might let an employee take a car home each night or at weekends. The amount of VAT you'll have to pay is based on the cost of making the vehicle available for private use and includes things like:
There is a simplified scheme for motor dealers to help you work out the VAT you'll have to pay on the private use of cars. You can use the scheme agreed between HMRC and the Retail Motor Industry Federation for the private use of demonstrator cars.
You can read this agreement in VAT Notice 700/57 (see the link below).
You'll still have to account for this VAT even if an employee pays you a nominal charge for using a vehicle privately.
If you buy and sell second-hand vehicles you might be able to account for the VAT by using the margin scheme, but only if there is no VAT shown on your purchase invoice. When you sell a vehicle under the margin scheme, instead of paying VAT on the full selling price, you work out the VAT due only on the difference between what you paid for the vehicle and what you sell it for - your 'margin'. There is no VAT for you to reclaim.
To be considered second-hand, a vehicle must actually have been driven for business or pleasure - it can't just have been registered and have delivery mileage.
You'll usually be able to use the scheme for used vehicles you buy from:
You won't be able to use the scheme for a used vehicle where there is VAT shown on the invoice. If VAT is shown then you can reclaim this VAT in the normal way provided you meet all the rules for reclaiming VAT, but you'll have to account for VAT on the full selling price when you sell the vehicle.
The margin scheme also covers commercial vehicles.
To use the margin scheme you'll need to keep detailed records of your purchases and sales and the margins you've achieved.
If you buy second-hand vehicles abroad and plan to resell them in the UK you'll need to register them if you intend to use them on the road or your customer requests that the vehicle is licensed and registered when they take delivery. You'll need to make a Notification of Vehicle Arrivals (NOVA) declaration to HMRC before you can register the vehicle with the DVLA or the DVA. You must make your notification within 14 days of the date of arrival or when the vehicles are put into free circulation If you're approved by the DVLA or the DVA, to use their secure registration schemes then you will not need to make a NOVA notification.
If you don't register the car with the DVLA or DVA before you sell it, the purchaser will need to notify HMRC using NOVA.
If you buy used vehicles from countries within the EU, to be considered as second-hand they must be older than six months and have travelled more than 6,000 kilometres.
If a vehicle fulfils the conditions for second-hand status above, and the purchase was either from a non-VAT-registered person or the purchase invoice has the appropriate margin scheme declaration, then you'll be able to account for VAT using the margin scheme.
If your vehicle is purchased outside the EU you must pay the VAT (and any other duties) to HMRC at the time it is imported into the UK. You can't use the margin scheme for these vehicles but you can reclaim the import VAT when making your next VAT Return provided you hold the appropriate C79 monthly import VAT certificate. You cannot reclaim the duty.
You can't always use the margin scheme for used vehicles that you take in part exchange. Anyone who is VAT-registered has to account for VAT on a vehicle they are selling you. They will have to issue a VAT invoice to you and you will not be able to sell that vehicle under the scheme.
You must always show the purchase value agreed with your customer for the vehicle taken in part exchange after you have shown the selling price and any VAT on the vehicle you are selling. You can't reduce the invoice price of the vehicle you've sold by the amount you've agreed to give in part exchange.