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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.
Find out the differences for VAT purposes between different 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.
More about stock in trade cars in Notice 700/64
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.
Find out when a transaction takes place for VAT purposes
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) you'll be able to use one or both of the DVLA secure registration systems. If you're not approved to use this facility you'll need to fill in one of the following:
Use form VAT 414 when you buy a vehicle from within the EU
Use form C&E 389 when you import a vehicle from outside the EU
You'll be able to reclaim the input tax - called 'acquisition VAT' - on vehicles that you buy from within the EU. You'll need to account for this on the appropriate VAT Return. You’ll need to account for VAT on the full selling price when you sell the vehicle.
If you import vehicles from outside the EU you'll have to pay import VAT and import duty to HM Revenue & Customs (HMRC). You'll be able to reclaim the import VAT in the normal way provided you have a copy of the C79 monthly VAT import certificate. You'll need to account for VAT on the full selling price when you sell the vehicle. You cannot reclaim the duty.
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.
Find out how to reduce financial guarantees using the SIVA Scheme
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.
Download VAT Notice 700/57 (PDF 320K)
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.
More about the record-keeping requirements of the margin scheme for second-hand goods
Find out what counts as a valid VAT receipt
If you buy used vehicles from countries within the EU, to be considered as second-hand they must meet both of these conditions:
You'll need to complete form VAT 414 for these vehicles to give to the Driver and Vehicle Licensing Agency (DVLA) or to the purchaser if you don’t register the car with the DVLA before you sell it.
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.
Use form VAT 414 when you buy a used vehicle in the EU
More about using the margin scheme when you buy second-hand vehicles abroad in VAT Notice 718
If you import used vehicles from countries outside the EU you'll have to pay import VAT and import duty to HMRC. You can't use the margin scheme for these vehicles but you can reclaim the import VAT if you hold the appropriate C79 monthly import VAT certificate as input tax.
You'll need to complete form C&E 389 for these vehicles to present to the DVLA or pass to the next purchaser if you do not register the car with the DVLA before you sell it.
Use form C&E 389 when you buy a used vehicle outside the EU
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.
Find out more about VAT when you sell new or used vehicles
Find out when you can and can't reclaim the VAT on cars
Read about the difference between cars and commercial vehicles for VAT purposes
