What Does VAT Qualifying Mean?

If you’re shopping for a vehicle, especially as a business or overseas buyer, you may come across the term VAT qualifying. It’s most often used in the context of car sales, and it has a specific meaning when it comes to reclaiming VAT.

This guide explains what VAT qualifying means, how it differs from non-VAT qualifying or margin scheme vehicles, when you can claim VAT back, and how VAT applies to different types of cars.

What Is VAT?

VAT (Value Added Tax) is a consumption tax charged on goods and services in the UK. The standard rate is 20%, though some items may be reduced or zero-rated.

Businesses registered for VAT can reclaim input VAT on qualifying purchases – including some vehicles – as long as they’re used for business purposes.

What Does VAT Qualifying Mean?

A VAT qualifying vehicle is one that has had VAT charged on its original sale and has remained within the VAT system ever since. This means:

• VAT was charged and shown on the invoice when the car was first sold (typically new)

• The car has been owned by VAT-registered businesses or leasing companies

• The vehicle has not been sold under the margin scheme

If a car is VAT qualifying, a VAT-registered buyer may be able to reclaim the VAT, provided the vehicle is used exclusively for business.

What Does Non-VAT Qualifying Mean?

A non-VAT qualifying car is one where the VAT cannot be reclaimed. This usually applies if:

• The vehicle has been owned by a private individual

• It was sold under the margin scheme, where VAT is only applied to the dealer’s profit margin and is not itemised

• The car was used for private or mixed use and VAT was not reclaimed initially

You can still buy and sell these cars normally, but no VAT refund is available to the buyer.

What Is a VAT Qualifying Car?

VAT qualifying cars are typically:

• Ex-fleet vehicles

• Lease cars returned to the dealer

• Company cars from VAT-registered businesses

• Demonstrator models used by dealerships

These vehicles come with a full VAT invoice, showing the price before VAT, the VAT amount, and the total gross price. If you're a business using the car exclusively for business use, you may reclaim the VAT via your VAT return.

What Is a Margin Car?

A margin car is sold under the VAT margin scheme, where VAT is applied only to the dealer's profit, not the full sale price. Margin scheme cars are not VAT qualifying, and you cannot reclaim any VAT.

Dealers use the margin scheme for vehicles they bought from private individuals or businesses that were not VAT registered.

VAT Deductible Cars and Business Use

To claim VAT on a car, the following must apply:

• You are VAT registered

• The vehicle is used 100% for business purposes

• You retain proof of purchase and a VAT invoice

In most cases, HMRC will not allow a VAT claim if the vehicle is used for any private purpose. Pool cars, taxis, driving school vehicles, and certain lease vehicles may qualify, but claims must be well justified and documented.

Savings for Car Export Customers

If you're buying a VAT qualifying car for export outside the UK, such as through the Personal Export Scheme, you may be able to purchase the vehicle VAT-free, provided it is shipped and registered overseas.

Export buyers should always check with the dealership and HMRC before proceeding, as the rules and paperwork must be followed precisely for a VAT refund.

Benefits of VAT Qualifying Cars for UK Customers

VAT qualifying cars are often more attractive to business buyers, since they allow for VAT recovery and potential tax savings. They are especially useful for:

• Leasing companies

• Businesses running fleets

• Taxi and chauffeur services

• Commercial vehicle buyers

Although the upfront cost may be higher, reclaiming the VAT can reduce the real cost if eligibility conditions are met.

VAT on Cars: How Does It Work?

• New cars sold by dealers always include VAT

• Used cars may be either VAT qualifying or sold under the margin scheme

• Pre-registered cars can be VAT qualifying, depending on ownership and how the car was sold

• Lease vehicles are usually VAT qualifying and leased with VAT added

• Company cars can be VAT qualifying if transferred correctly

• Electric vehicles follow the same VAT rules as combustion vehicles, but may be eligible for other tax incentives

• Commercial vehicles, such as vans, typically allow full VAT reclaim if used for business

VAT Relief for Adapted Cars

If a vehicle is being adapted for use by a disabled person, it may be eligible for VAT relief, reducing the cost of the car and any adaptation work. HMRC has specific rules for this and may require a signed declaration or proof of eligibility.

Who Can Claim the VAT Back?

Only VAT-registered businesses and individuals can claim VAT back on a VAT qualifying car. You must prove that the car is used wholly for business purposes and retain a full VAT invoice.

If you're buying for export, you may also reclaim VAT under special schemes, provided all conditions are met.

How Do I Reclaim the VAT When I Export a Car from the UK?

To reclaim VAT on an export:

1. Buy a VAT qualifying car

2. Ensure it is exported within three months

3. Provide proof of shipment and overseas registration

4. Apply for the VAT refund through your exporter or dealer

5. Retain all documentation in case HMRC audits the transaction

Export VAT rules are strict, and errors can result in refusal or penalties, so professional advice is recommended.

Final Thoughts

A VAT qualifying vehicle is one that has remained within the VAT system and allows eligible buyers to reclaim the VAT – usually for business use or export. It’s not a reflection of the vehicle’s condition or quality, but rather its VAT history.

If you're considering buying a vehicle as a business or planning to export it, always check the VAT status first. The savings can be significant, but only if the proper rules are followed and the paperwork is in order.