VAT when buying a used van

Shabbycat

Hello,

I might be buying a van off an acquaintance of mine who is an electrician.  He leased the van and he has been offered £10,000 + VAT for the vehicle.  I'm assuming as he has his own business he will claim the VAT back. I'm not VAT registered so do I need to pay VAT on the van?  I need to understand how this works before I start negotiating with him.
Thank you

FatherTireseus

When you say 'he has been offered £10,000 + VAT' for the van, do you mean the leasing company has offered to sell it to him for £10k plus VAT (which would be a total of £12k), and then you might buy the van from him?

If he is VAT registered then yes, he can reclaim the VAT on any business purchases he makes which are liable for VAT.  And any sales his business makes, he needs to add on VAT to the sales price.

So if he sold you the van as a business transaction, he would need to charge VAT on it.  VAT is a tax paid by end consumers who aren't VAT registered.  (Imagine for a minute if a company offered to sell you a van for £10k plus VAT - they'd charge £2k VAT on the amount of £10k and you would have to pay it if you wanted the van).

But remember, the VAT your mate adds to his sales needs to get paid over to HMRC.

So let's assume he buys the van from the leasing company for £10k plus VAT, i.e. £12k.  He pays the leasing company £12k for the van (so his bank account is down £12k); he has an asset in the business of £10k; and he reclaims £2k VAT from HMRC which will go back into his bank account.  Net result: asset in business £10k; bank account down by a net £10k. 

If he then sells the van on to someone for £10k, he needs to add 20% VAT so his transactions are sales £10k plus 20% VAT = £12k.  He receives £12k from the buyer BUT he then needs to pay the element of that which was the VAT, over to HMRC - which is the £2k.  The assets in his business have gone down by £10k and his bank balance has gone up by £10k (£12k total sale less £2k paid over to HMRC).

The bottom line is, your mate's business would be no worse or better off by buying a van from the leasing company and selling it to you straight away for the same price because he would account for the VAT on the sale and the purchase.  If you're not VAT registered then unfortunately you end up paying the VAT and you can't claim it back.

Shabbycat

Thank you so much for your reply. That was my understanding from what I read but some of my colleagues had doubts. Thanks again.