VAT: Buying And Selling A Second-hand Commercial Vehicle

Andrew Needham looks at the VAT consequences of buying and selling a second-hand commercial vehicle.

When a business buys a new commercial vehicle, it will be charged VAT on the full selling price. Unlike motor cars, when the recovery of input tax is blocked unless there no private use of it at all, the VAT on a commercial vehicle can be reclaimed.

If you buy a second-hand commercial vehicle from a non-VAT registered business, they will not be charged VAT so there will be none to recover. If it is bought under the second-hand margin scheme, you will not be provided with a VAT invoice and you will be unable to reclaim any VAT.

Selling a commercial vehicle

If a VAT registered business sells a commercial vehicle on which it has recovered the VAT, they will need to charge VAT on the full selling price. Even if you are a partially exempt business or only claimed back a proportion of the VAT because there was private use of the vehicle, you will need to charge VAT on the full selling price.

If you bought a second-hand commercial vehicle from an unregistered business or under the second-hand margin scheme, you can also sell it under the second-hand margin scheme. This means that VAT is only due on any profit that you make on the sale. In the vast number of cases, a business that has used a commercial vehicle for some time in its business will sell it for less than then they paid for it, so there will no VAT due on its sale.

Buying second-hand from a dealer

A business buying a second-hand commercial vehicle from a dealer will normally try and sell it to you under the second-hand margin scheme. This means that they only account for VAT on the profit margin, but your business will be unable to recover this VAT as it is a condition of the use of the second-hand scheme.

The use of a second-hand scheme by a dealer is not compulsory and they sell goods either using the scheme or not. If a VAT registered business is buying a second-hand commercial vehicle, it is actually better off not buying it on the second-hand scheme but paying VAT on the full purchase price, as it can be recovered as input tax. The dealer is also better off by not using the second-hand margin scheme when selling to a VAT registered business.

Example: Purchase of van from a dealer

A dealer buys a van for £8,500 and wants to sell it for £10,000. This gives him a margin of £1,500 and VAT due of £250 (£1,500/6 = £250).

The purchasing business is unable to recover this VAT and the dealer has to account for £250 out of his profit margin.

As a VAT registered business, you ask the dealer to sell you the van outside the margin scheme, so he will charge VAT on the full selling price. This means that you pay £10,000 for the van and are charged £2,000 VAT, which you can recover in full. The dealer pays the VAT over to HMRC, but he does not have £250 taken out of his profit margin.

If you are astute you can explain the VAT position to the dealer and negotiate a reduction in the sale price of, for example, £125 - this in effect splits the VAT that would have been due under the margin scheme, so the dealer has £125 more profit and you pay £125 less for the van.

Practical Tip:

Businesses buying or selling commercial vehicles should be aware of the alternative VAT treatments and can obtain a VAT advantage in some circumstances.