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If you're a motor dealer it can be difficult to establish the correct VAT position when you sell a new vehicle. Transactions can be complicated because the vehicle manufacturer might require you to offer special promotions like:
The VAT position when you sell a used vehicle is also affected by several factors - most importantly whether or not you paid VAT when you bought the car.
Because the position can be complex it's very important to be aware of and to follow the VAT rules.
This guide explains the VAT position when you sell new and used vehicles.
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As a motor dealer you'll normally account for VAT at the standard rate when you sell a new vehicle to a customer. But you may be able to zero rate the sale if you supply the vehicle direct to a disabled person. You can find out more about this in the section of this guide that covers vehicles for disabled people.
For VAT purposes you're selling a 'new' vehicle even if:
This means you can't sell it using the Margin Scheme for second-hand goods.
If you pre-register a vehicle in your own name you can't treat the road tax and the first registration fee as 'disbursements' when you sell the vehicle. (A disbursement is an expense that you pass on to your customer.) The cost of these is considered to be part of a single supply of the vehicle. You account for VAT at the standard rate on the total cost of the vehicle, including the road tax and the registration fee.
When you sell a new vehicle you charge VAT on the full selling price. Usually you can’t reduce the selling price by the amount of any cashback deal that the vehicle manufacturer offers to your customer.
There are different ways of accounting for this type of payment and your supplier should be able to give you accounting instructions. If you need any more help you can contact HM Revenue & Customs (HMRC) for guidance.
When you sell a new vehicle you might ask your customer for a deposit. You account for VAT on the deposit in the VAT period in which you receive it.
If you sell a new vehicle to a customer on hire purchase you invoice the finance house rather than your customer. You account for the VAT when you issue your invoice - which could well be before your customer takes delivery of the vehicle.
For VAT purposes, when you sell a vehicle on finance, the value of the vehicle on your invoice to the finance house must be the same as the value that you declare to HMRC and show in your business books and records.
You may be able to use the Margin Scheme for second-hand goods to account for the VAT when you sell used vehicles, but you can’t use the scheme for vehicles where there is any VAT shown on the purchase invoice. Under the scheme, when you sell the vehicle, instead of paying VAT on the full selling price, you work out the VAT due only on your 'margin'. This is the difference between what you bought the vehicle for and what you sell it for.
You won't be able to use the scheme:
Whenever you sell a vehicle under the Margin Scheme you must give your customer a sales invoice that follows the special rules for Margin Scheme invoices - whether they're VAT-registered or not.
You can only use the Margin Scheme where there is no VAT shown on the purchase invoice you were given when you bought the vehicle. If any VAT is shown, you reclaim it in the normal way and then have to pay VAT on the full selling price of the vehicle.
There are some aspects of the scheme that you'll need to take care with:
In most cases your customers won't be able to reclaim the VAT you charge when you sell them a new vehicle. They won't be able to reclaim the VAT on any accessories you fit as part of the sale either. This is because for VAT purposes the accessories are part of a single supply of a vehicle. So it's important that you don't invoice your customers separately for any accessories because they may then reclaim the VAT by mistake.
You'll need to include the accessories on the invoice for the new vehicle. You can treat them in either of the following ways:
Either way is fine. You account for VAT at the standard rate on the invoice total.
This also applies if you sell accessories with a used vehicle that you don’t sell under the Margin Scheme.
Some protective equipment isn't standard-rated for VAT purposes. For example:
Sometimes things like road tax and registration fees can be treated as disbursements. Disbursements are expenses that you pass on to your customer. They're outside the scope of VAT so you don't charge VAT on them when you invoice your customer.
When you first register a new vehicle you can treat the fee as a disbursement - but only if you deal with the first registration for your customer. If you're registering the vehicle in your own name you can't treat the fee as a disbursement when you come to sell the vehicle - it's part of a single supply of the vehicle. You add the fee to the vehicle's sale value and work out the VAT on the total.
If your customer asks you to tax the vehicle they've bought from you, then you can treat the cost of the tax disc as a disbursement. But if the selling price of the vehicle they buy includes the road tax, then this is part of a single supply of a vehicle. You'll have to charge VAT on the total, including the cost of the road tax.
If you sell some sort of warranty or breakdown insurance with a new or used vehicle, the VAT position depends on who is providing the cover.
If you're taking all the risk, then you must charge VAT at the standard rate on the selling price of the guarantee, even if you take out 'stop loss' insurance yourself to cover any major potential risk.
If the warranty or guarantee held by your customer is a contract underwritten by an insurance company then the premium that your customer pays is exempt from VAT. You'll have to disclose to your customer, in writing:
If you wanted instead to include the cost of the premium and any arrangement fee in the overall price of the vehicle then you would have to charge the standard rate of VAT on:
The net premium you pay to the insurance company remains exempt.
IPT is charged on premiums for insurance relating to vehicles, and is paid to HMRC by the insurance company. But if you charge an arrangement fee to a customer under a separate contract you'll have to register for IPT, and account for IPT on the arrangement fees you charge.
You might sell a second-hand vehicle and a warranty together for a single price. But you can't include the sale of the warranty in the calculation of your margin if you've given the warranty a value. The sale of the warranty is a separate supply of services and you'll have to account for VAT on the value.
If you advertise a Margin Scheme vehicle for sale with a free guarantee you can't reduce the vehicle's selling price by an amount to represent the guarantee when you work out the margin on which VAT is due. This is because no value has been given to the guarantee in your advertising.
For VAT purposes there are two supplies if your customer can choose whether or not to buy a guarantee with a Margin Scheme vehicle - and if both the price of the vehicle and the guarantee are separately negotiable. This means that VAT at the standard rate is always due on the selling price of the guarantee - even if you sell the vehicle at a loss under the Margin Scheme.
When you supply a motor vehicle to a disabled person you can zero rate the sale as long as:
To qualify as permanently and substantially adapted, the adaptations must be intended to last indefinitely and cannot be removed quickly or easily. A substantial adaptation will alter the vehicle in a meaningful way to either:
When you supply a boat to a disabled person you can zero rate the sale if:
To qualify as permanently and substantially adapted a boat should include all or most of the following adaptations to suit the disability of the disabled buyer:
A voluntary scheme has been introduced to gather information from businesses about zero-rated sales of adapted motor vehicles and boats to disabled people.
As long as you meet certain conditions, you can zero rate the supply of a new or used vehicle to any of the following:
However, if you're selling a second-hand vehicle under the Margin Scheme to someone in the EU, then you must account for UK VAT on your margin. It doesn't matter whether or not your customer is VAT-registered.
Also, if you’re selling a used car to someone in the EU who isn’t VAT-registered, and you were charged VAT on the purchase of the car - a 'qualifying car' - then you must account for VAT on the full selling price.
There’s a special scheme for sales of new, used and Margin Scheme vehicles for individuals who intend to leave the EU. It's called the Personal Export Scheme (PES).
There’s also a special scheme for sales of new vehicles to individuals who are taking the vehicle to another country within the EU. These vehicles are referred to as New Means of Transport (NMT).
You'll have to fill in an EC Sales List - form VAT 101 - for any vehicle where both of these are true:
You don't have to complete an EC Sales List for a vehicle in either of these categories: