BIM31545 - Value Added Tax: motor cars
VAT incurred on the purchase of motor cars that are made available for private use is not deductible input tax unless the motor car is predominantly for use as a taxi, self-drive hire car, or for driving tuition. A ’motor car’ is defined by Article 2 of the Value Added Tax (Cars) Order 1992, SI 1992 No 3122. You should ensure that the VAT on such cars is not charged to revenue. For capital allowances purposes the cost of the car should include the VAT.
When the car is disposed of by a registered trader, VAT is payable in full if input tax has been reclaimed. Where the deduction of input tax was blocked on purchase, the onward sale of the car is an exempt supply. Where no VAT was charged on the purchase of the car, VAT is payable on the sale on the excess, if any, of the selling price over the purchase price. Where exceptionally this happens, the sale price exclusive of VAT is the amount to be taken into account for capital allowance purposes.