Can I Claim Back VAT On A Hire Purchase Car?

Figuring out whether you can claim back VAT on a hire purchase deal can be tricky 🤔

Whether you're buying a vehicle for personal use or for your business, understanding VAT on cars can help you make the right decision.

In this blog, we'll guide you through VAT on new cars, used cars, and the rules for reclaiming VAT on cars.

So, if you're curious to learn more about VAT, its effects on car prices, and what it means for you, we’ve got you covered 😀

Got a specific question? Why not jump to:

What is VAT?

Value Added Tax (VAT) is a type of tax that's added to goods and services in many countries, including the UK.

It's an important part of government revenue and affects the overall price consumers pay for various products and services.

For individuals buying a car, VAT is included in the price of both new and used cars at the point of sale. It can significantly impact the final cost.

For businesses, VAT on cars that are specifically designed for business use (taxis, hire cars etc.) as well as those used for business purposes (and not available for private use) can sometimes be reclaimed.

How much is VAT on car purchases?

The standard rate of VAT on car purchases in the UK is 20%. This applies to most new cars, and the tax is usually included in the advertised price of the vehicle. Goods bought through hire purchase are treated like regular sales for VAT purposes. For regular hire purchase agreements VAT is charged on the entire cost of the goods at the time of delivery.

For businesses, understanding the VAT on new cars is vital as it can impact the overall cost of vehicle acquisition.

The rate is the same across different types of vehicles, although there are some exceptions and special schemes.

These include schemes for disabled drivers or specific business uses, where the VAT rules can vary.

Do you get charged VAT on used cars?

When it comes to used cars and VAT, the situation can vary. Generally, VAT on used cars is not as straightforward as it is with new cars.

Buying from a dealer? Expect VAT.

Dealers are businesses, so they must charge VAT on used car sales, typically at the standard 20% rate which means the price you see advertised already includes VAT.

Buying from a private seller? No VAT (usually).

Private individuals aren't businesses, so they don't need to charge VAT when selling their used cars. This means you'll only pay the agreed price, without any extra VAT.

Pre-registered cars? VAT still applies.

Even though these cars haven't been owned by an individual, they've technically been sold by a business (e.g., manufacturer) and therefore subject to VAT. So, expect the price to include VAT, just like buying from a regular dealer.

So, the average driver typically can’t claim back VAT on a hire purchase agreement. However, it may be possible for disabled drivers and businesses to make a claim, which we’ll explore later on.

More car finance guides

Can I reclaim VAT on a new car?

If you’re a business, reclaiming VAT on a new car purchase is possible, but it depends on how the vehicle is used:

Cars and vans

Generally, VAT can be reclaimed on cars and vans used exclusively for business. However, if available for private use, you'll need to distinguish between:

Partial business use

Calculate the VAT recovery based on the business mileage proportion using a "reasonable estimate" or a logbook (recommended).

Available for private use

You cannot reclaim any VAT on the purchase, lease, or running costs. But you can still reclaim VAT on repairs and maintenance.

Taxis and hire cars

Generally, VAT can be reclaimed on these vehicles even if used for private journeys, as they're designed for business use.

To ensure you’re covered from a tax perspective and not falling foul of misinterpreting exemptions you should check whether you can reclaim VAT on cars under your specific finance agreement.

VAT relief on adapted vehicles for disabled drivers and charities

Disabled drivers, charities and eligible bodies, such as hospitals and care homes that create a qualifying modified vehicle for disabled people may also be eligible for VAT-free car purchases under certain conditions.

This exemption aims to make vehicles more accessible and affordable for those with disabilities.

To qualify, the vehicle must be primarily used by the disabled person, and it may need specific adaptations, which could include the following:

  • Vehicles adapted to meet the specific needs of disabled people, such as wheelchair-accessible vehicles, vehicles with hand controls, or lowered floors.
  • The adaptations must be designed solely for disabled people and not suitable for general use.
  • Second-hand adapted vehicles can also be eligible.

Understanding these rules is crucial for disabled drivers looking to buy a car, as they can significantly reduce the overall cost of the vehicle. The sale of the adapted vehicle to an eligible person is not subject to VAT and if they’ve already paid VAT on an adapted vehicle, they may be able to claim a refund.

Disclaimer - Carmoola does not provide financial or tax advice. You should always seek independent advice which takes into account your personal circumstances. For more information on VAT on vehicles and motoring expenses please visit the government website

If you’re looking to purchase a car on a hire purchase agreement, consider applying through Carmoola.

We have made car finance easier to access and understand, offering drivers a fast, convenient way to get the funds they need 😍🚘

FAQs About Claiming Back VAT on a Hire Purchase Agreement:

How is VAT different from other tax?

VAT, or Value Added Tax, is a consumption tax applied at each stage of a product's sale. It is included in the price paid by the consumer, differing from income or corporate taxes.

How does the VAT second hand margin scheme benefit buyers?

The VAT second hand margin scheme benefits buyers by lowering the VAT they pay. Under this scheme, VAT is charged only on the profit margin of the dealer, not the full sale price of the vehicle.