A client bought a car through his business on finance, and it has been a legitimate company vehicle for a few years. The finance is now paid off, and he would like to sell it, but as the business is VAT registered, he would need to sell it with VAT included. He has asked if he can transfer ownership into his name (and account for the equivalent value as a dividend) then sell the vehicle privately without VAT? 

Arthur Weller replies: 

I presume that your client is not only a shareholder of his company but also a director or employee. See HMRC’s Employment Income manual at EIM21651 and EIM21655. Your client would be taxed on this transfer of the car under the employee benefit rules and not as a dividend. It appears from HMRC guidance that the business needs to charge your client VAT on this transfer. So, the bottom line is that although your client can do what he proposes, it seems he will not gain.