What is a “VAT qualifying” used car?

What the trade call “qualifying” used cars will usually be ex-company, leasing or rental cars (i.e. cars that are bought inclusive of VAT) and means the dealer will pay the VAT uplift on the car sold and will also pay more VAT on the profit they make.

“VAT qualifying” determines the status of the car for VAT purposes, so if VAT has been fully recovered on a car, that car will be “VAT qualifying”. If a qualifying car is sold VAT will then be chargeable on its sale price, and recoverable by the purchaser. If input VAT recovery has been restricted on a car at any point in its life, that car becomes “Non-Qualifying”.

In basic terms this means that if the car was originally sold to a VAT registered company or individual then they will have reclaimed the VAT on the purchase price so when the car is sold on there is still a VAT element to be recovered. When the car is eventually sold to a private individual who is not VAT registered there is no further VAT recoverable.

The dealer does pay the VAT on the purchase price but then reclaims it as ‘Input Tax’. When the vehicle is sold the ‘Output Tax’ must be accounted for on the full sale price. Come January output Tax will be calculated at 14.89 % of the gross sale price, otherwise known as the VAT fraction of 7/47.

On cars that are purchased by a dealer which are non-VAT qualifying (known as “margin cars”) VAT on the profit made is still payable by the dealer so if the profit on one of these was £1,000 the VAT payable of that profit would be £130 at the moment but will rise to £149 in January.

Basically that means £19 more going to the government for every £1,000 of profit made on each car sold.

Powered by WordPress. Designed by WooThemes