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What’s the deal with VAT and commercial vehicles?

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You can usually reclaim all of the VAT on a commercial vehicle, so the full 20%. This applies to any motorised vehicle which you will use in your business, including motorbikes, scooters, vans, cars, trucks, dropsides and everything between.

There are three important things to remember about VAT and commercial vehicles. We’ll take a look at these below.

  1. The purchase method dictates how VAT is payable

If you purchase a commercial vehicle on a finance lease or operating lease, VAT is payable on rentals. If you purchase a commercial vehicle on a hire purchase agreement or for cash, VAT is payable at point of sale, so up front.

Depending on how you currently pay your VAT, one purchase route may stand out as more convenient for you. However, since in the end it is reclaimable and VAT is always payable on the purchase price, there is no VAT cost benefit between these finance agreements, other than the lower payments that come with a finance lease or operating lease as a result of the finance amount being lower overall.

  1. How the vehicle is used determines how much VAT can be reclaimed

You can reclaim 100% of the VAT on commercial vehicles that are used exclusively for business purposes and 50% on vehicles that are mixed use. A good example of a 100% use vehicle is a large van, HGV or forklift. A good example of a mixed-use vehicle is a company car or small work van you get around in.

With cars, there is also the ability to reclaim 100% of VAT if it is used as a taxi, for driving instruction, or self-drive hire, otherwise a 50% rate applies, unless you can prove the car is used exclusively for business purposes.

  1. VAT is only reclaimable if you or your business is VAT registered

We sound like we’re pointing out the obvious here but many a small business owner has forgotten it – to reclaim the VAT on a commercial vehicle, you or your business (whoever is on the paperwork) must be VAT registered.

If you are not, you can’t reclaim the VAT on any purchase. The taxable turnover threshold which determines if a business must be VAT registered is £85,000. For individuals, it stands at £83,000. These rates are fixed to 31 March 2022. If you are above the threshold you need to register for VAT as a matter of course.

VAT payments are usually made monthly or quarterly. Your deadline is usually the date you registered for VAT plus 1 month and 7 days, or 1 month and 7 days from the end of your accounting period. You can claim pre-registration VAT on your first return, so if you are not VAT registered now you can reclaim the VAT on a commercial vehicle if you get yourself VAT registered up to 4 years in the future.

To find out more about how your business can benefit from tax breaks with commercial vehicles, speak with our team. Call us now on 01234 240 155.

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