VAT on vans explained for businesses

If you remember the theme tune from ‘Only Fools and Horses’, you’ll know that Del Boy was a great advocate for ‘no income tax, no VAT’. In this article, we’re not recommending Del Boy’s practices, or suggesting you pay with a briefcase full of used fivers, but explaining how to avoid VAT when buying a van.

VAT on a van for business

If you’re planning to buy a new or used van for your business, be aware that you could pay an additional 20 percent on top of the ticket price. That 20 percent is the VAT that a seller must charge you and then pay to HMRC, provided they are a registered VAT business themselves.

That will be the position for most dealerships, although the situation could vary if you were buying from another type of business or a private individual. If the other business is VAT-registered, they must also charge you VAT. That is unlikely to be the case for private individuals selling a van.

VAT of 20 percent is the basic starting point when you are calculating the likely total cost for your next Van. However, there are a number of scenarios where you can avoid the additional cost of VAT, either by not having to pay at the time you buy or by reclaiming the VAT after the purchase.

To reclaim VAT, your business must be VAT-registered. You cannot reclaim if you are not VAT registered, the vehicle must be used primarily for business purposes, although insignificant private use (such as commuting) is generally permitted under HMRC rules. HMRC provides guidelines on reclaiming VAT on cars and commercial vehicles.

Related: Benefit In Kind: When does a van become a company car?

Buy a van from a non-registered seller

If the business or individual selling the van is not registered for VAT, they cannot charge VAT on the selling price. To charge would be illegal. So it’s essential when you approach a seller to ask if they are VAT-registered.

If they claim to be registered, ask for a VAT invoice. This must include their registration number and will allow you to reclaim any VAT.

Pay VAT on part of the purchase price

Some VAT-registered dealers operate under the VAT margin scheme. This means that the dealer accounts for VAT only on the profit margin between the purchase price and the selling price, rather than on the full sale value of the vehicle.

As an example, if a dealer buys a van for £9,000 and sells it for £10,500, the dealer will account for VAT to HMRC on the margin of £1,500 rather than the full selling price. The VAT is included within the margin and is not shown separately on the invoice.

However, under the VAT margin scheme, the dealer must not provide you with a VAT invoice and you cannot try to reclaim the VAT. In some situations, this may not be a real advantage as we’ll show in a later example.

How to avoid VAT when buying a van through a limited company

If your business is a VAT-registered limited company, you can buy a new or used van in a tax efficient way. However, the vehicle must be classified as a van, not any other type of vehicle.  An estate car, for example, would not be classified as a van, even if you used it for business deliveries. The vehicle must be used primarily for business purposes. Limited private use, such as commuting, may still be permitted, although significant private use could affect the tax treatment. However, significant private use may change the tax treatment of the vehicle.

You may also be able to reduce your Corporation Tax bill by claiming the cost of the vehicle through capital allowances, such as the Annual Investment Allowance.

If you buy from a non-registered seller, you would not be able to reclaim the VAT, but you could make use of the Corporation Tax benefit.

Related: How to pay Corporation Tax: A guide to rates & deadlines

Related: UK business mileage allowance and mileage allowance relief

Support from Accounts and Legal

This is helps answer the question 'How to avoid VAT when buying a van?' If you would like professional advice on the financial implications of buying a van for your business, or would like confirmation that you are complying with HMRC’s VAT rules, our team of experienced tax accountants will be glad to help.

To find out more, please contact us on 0207 043 4000 or info@accountsandlegal.co.uk. You can also get a quick online accountancy quote here.

Read More: Tax Debate: Company car or car allowance?