When you’re buying a car, VAT can add a hefty extra price tag, charged at a standard rate of 20% for new cars. So, if it’s a second-hand car in your sights, you might want to know ‘is there VAT on used cars in the UK?’ The answer to this question will vary depending on how the car is purchased. Read on to learn more.
Eligibility: is there VAT on used cars in the UK?
Ultimately, this will depend on how you buy your car. Firstly, if you purchase your used car from a private seller, then there will be no VAT to pay.
However, if you buy your used car through a car dealer, then whether or not you are charged will depend on how the dealership handles VAT. For this, there are two potential methods. If you’re wondering ‘is there VAT on used cars in the UK?’, then it’s important to understand the difference between these…
Second-hand margin scheme
This is the method used by the majority of car dealerships and involves only charging VAT on the profits made from the sale of the car. The rate charged will be 1/6th of the profit margin.
This VAT will be factored into the price of the car, rather than being recorded as a separate charge on the invoice.
VAT on the full selling price
In some cases, the dealer may charge VAT on the full selling price, which will naturally be more costly. However, this method is rarely used due to higher tax charges.
According to This is Money, both of these methods are completely legal, and you should remain aware that car dealers are under no legal obligation to inform you at the outset of the method they use to record VAT. So, due to the potential increase in costs, you should discuss the VAT method with the dealership before making a decision about whether to buy.
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