As accountants, we often get asked if a vehicle is a commercial vehicle (van) or a car for VAT purposes.
So when is a van a van?
Generally speaking, for a vehicle to be treated as a van for VAT purposes, it needs to be constructed with the primary purpose of the conveyance of goods/burden and/or have a payload of 1 tonne or more. If you are looking to buy a double cab pickup, which has rear windows and seats, in most cases they would still qualify as a van due to the payload limits. Note that the addition of a canopy or hard back can reduce the payload, so care may be required when looking at adding some options. Care does need to be taken when buying “crew cab” vans too, as just because a van looks like a van, it may not be a van for VAT purposes. A recent Coca-Cola tax case, albeit centring around the Benefits In Kind rules, came to the conclusion that multi-purpose vehicles may not be vans, and again, this is where modifications and primary purpose need to be considered. If you are unsure about the VAT treatment of a vehicle, please contact us.
So can VAT be reclaimed on the purchase of a car?
In short, it is possible, but only under strict criteria. The car must not be available for private use, and you must be able to demonstrate this. This could be by way of an employment contract condition, or the insured usage is only business purposes. Private use does include travelling between home and work, so care is required here, and the key word is “available”. Just because it isn’t used for private use, doesn’t mean it can’t be used for private use. Other areas whereby VAT could be claimed on a car purchase are where the car is specifically for business purposes, for example a taxi, driver training car or self-drive hire cars. In contrast, when looking at Benefits in Kind, a fuel benefit does not arise for a van if only commuting to & from work in the vehicle, unlike a car where a fuel benefit would arise for commuting.
Buying a second hand van – can you reclaim the VAT?
It depends on the circumstances. If the seller is not VAT registered, you wouldn’t be charged VAT, so there would be no VAT to reclaim. If the seller is a dealer and registered for VAT, they may only charge the VAT on their profit margin (the second hand car margin scheme). If this is the case, you would be unlikely to receive a VAT invoice, and so the VAT can’t be reclaimed. The third option is that the seller is VAT registered and then provides a VAT invoice, charging the full 20% VAT on the sales price. In this case, the VAT is reclaimable, subject to normal VAT rules and restrictions on the reclaim, such as partial exemption. It should be noted that if your business trades as a company, to enable the VAT reclaim on the purchase, the vehicle must be bought by the company. If the company owns a car that is used by an employee or director and is used for private motoring, a benefit in kind charge will arise. For non-incorporated businesses the benefit in kind charge would still arise if used by an employee, however, if used by the business owners there would be no benefit in kind, though some restriction on the business element of costs would be required.
Other things to consider in relation to vans for VAT purposes are the fuel scale charges. Look out for our VAT common pitfalls blog on scale charges to read more about this. If you are looking to buy a commercial vehicle, and are unsure as to whether it would qualify for VAT reclaim purposes, then please contact us – we are only too happy to help you get it right.
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