How To Avoid VAT When Buying A Van

Buying a van can be an expensive time and the cost can increase even further when you need to pay VAT on top of the purchase price. There are some situations, however, when you won't need to pay VAT on your van purchase. And these are still well within HMRC's rules and regulations. If you need advice on all things VAT, contact us at Auditox Accountancy. We understand that VAT is a complex tax and we can help you to work through any VAT issues you may have.

What Is VAT?

VAT is Value Added Tax. It is a consumption tax that is placed on almost all goods and services in the UK. The standard rate of VAT is 20%, although it can be lower for some special items such as children's clothes and fuel.

VAT is added on top of the selling price by the supplier so the consumer is the person who pays the tax. The supplier is then responsible for passing the money on to the government.

How To Avoid VAT When Buying A Van

All vehicles, including commercial vehicles like vans, will be subject to VAT. So you will usually need to pay VAT on top of the purchase price of the vehicle. But there are some situations where you either won't need to pay VAT in the first place, or you will be able to reclaim paid VAT afterward.

Dig Deeper: How To Avoid Paying VAT As A Business

Buying A Second-Hand Van

Unlike private vehicles, buying a van second-hand doesn't always mean that you won't be paying VAT. Commercial vehicles are often bought by VAT-registered businesses and those businesses will usually have claimed the paid VAT back. So when the van is sold again, it will still be subject to VAT because it hasn't been received by the government.

The exception to this is you buy from an individual in a private sale or you are buying the van from a non-VAT registered business. In these cases, the VAT paid on the selling price won't have been claimed back so the van will no longer be subject to VAT.

Buying Through A VAT-Registered Limited Company

If you are buying a van from a VAT-registered seller and you have a VAT-registered company, then you can buy the van in the company's name. The seller will charge VAT and you will need to pay it but you can then claim it back.

In this situation, the can will need to be used for business purposes only. Any private use of the van will be subject to tax and National Insurance charges.

Learn more: How To Check If A Company Is VAT Registered

Buying Through The VAT Margin Scheme

If you buy a second-hand van through the VAT margin scheme, you will end up paying VAT but it won't be the normal 20% of the entire purchase price.

Under the VAT margin scheme, you will only need to pay VAT on the profit that the seller made. In other words, the VAT will be calculated on the difference between the price the dealer bought the van for and the selling price.

VAT also isn't at the standard 20% rate. Instead, it is calculated as one-sixth of the difference between the buying and selling price.

There are quite a few rules and regulations surrounding the VAT margin scheme and not all second-hand vans will be eligible for it. To be eligible, the seller must have bought the van under certain conditions. These include:

• from a private individual
• from a non-VAT registered company
• if it was bought from VAT-registered dealers, the van will only be eligible for the VAT margin scheme if it was bought under the same scheme
• if it was bought under the Motability scheme

The dealer must not give you a VAT invoice and you won't be able to claim the VAT back even if you are buying the van using a VAT-registered company.

The VAT margin scheme is voluntary and it can help you to pay less VAT but it does limit your buying options and there are quite strict rules surrounding it. It can sometimes end up being cheaper to come up with a deal on the ticket price with the dealer and accept the full VAT.

Van Leasing And Hire Purchase Schemes

Leasing a commercial vehicle can make a lot of sense for a variety of reasons and sometimes it can mean that you avoid paying VAT but the situation is a little complicated.

For hire purchase schemes, you will pay VAT as part of your monthly fee. This is because it is deemed as a VAT-taxable purchase, even though the payments are spread out. So if you are happy to spread the cost but still be charged VAT, this can be a good option.

For leasing under a PCP (Personal Contract Purchase) agreement, it all depends on the balloon payment at the end of the contract. Under a PCP scheme, you are in a finance agreement based on the depreciation value of the vehicle based on a guaranteed minimum future value (GMFV).

If your balloon payment at the end of the contract is at or above the anticipated market value of the van (the GMFV) then it is treated as a supply of leasing services so you will be charged VAT.

If, however, the balloon payment is below the GMFV, then it will be treated as a supply of goods with an optional line of credit and you won't be charged VAT.

Looking at the small print of your PCP contract is vital if you want to check if the company will charge VAT on the purchase.

Explore further: Can I Have 2 Businesses To Avoid VAT

If You Need Help With VAT

Whether you are buying a new or used van, whether or not you will need to pay VAT isn't always obvious. Many of the routes you would need to take to avoid paying VAT will be subject to strict guidelines laid out by the government.

If you need VAT advice, you can contact us at Auditox Accountancy. Our team of experienced accounting professionals understands the ins and outs of VAT, its rules and regulations, and how you can avoid VAT if it is possible.

Final Thoughts

It is possible to avoid VAT when buying used vans and occasionally when buying new ones. It can be well worth looking into these different purchase options because the 20% difference in the price of a van can make quite a big dent in the price you end up paying.

While you're here, take a look at our post "Being VAT Registered Is Killing My Business" for more additional information.