VAT on Vehicle Tax

frozenmonkey

Morning folks,

I've just received an email from my leasing company stating that I will have to start paying Vehicle Tax on the EV that I lease from them.  Fine no problem with that.

They've also stated they will be charging me VAT on this...wondering if anyone knows whether this is right?  I didn't think you paid Tax on Tax.

la531983

Yes Ive had this with mine, charged me a fiver VAT on top of the £25 extra VED charge for the year. They emailed me an explanation...

"Unfortunately we have to charge VAT on this because the HMRC take the view that a leased vehicle is only roadworthy if it includes road tax, so it can’t be separated from lease rental payments for VAT purposes."

You wont be getting out of it, trust me.

user1977

frozenmonkey said:

I didn't think you paid Tax on Tax.

Firstly, there's no such general rule, and plenty of circumstances where you do pay tax on tax (e.g. you pay VAT on things you buy with your taxed income...)

I think it is competent for a third party to treat the payment as a service being provided by them and therefore VATable, but I don't know whether it's common in this circumstance.

facade

frozenmonkey said:

  I didn't think you paid Tax on Tax.

Absolutely you pay tax on tax (on tax, on tax.....)

When you buy petrol it has a massive amount of fuel duty added on. Then the whole amount, including the duty is taxed at 20%- which is why HMG can afford to magnanimously freeze fuel duty when fuel prices are sky high, as fuel prices go up, they grab 20% of the increase as VAT anyway.

Meanwhile the money you bought it with was taxed when you earned it.

If you are a public servant or on a pension/benefits, the money you are paid came from someone else's (and your own ironically) taxes....

Amazingly, I believe that Council Tax does not have VAT! (evn though it is paying for a service-Probably will after the March Budget though....)

TooManyPoints

There's plenty of circumstances where tax is paid on something that is already taxed. For example, fuel prices are calculated as the base price, plus Excise Duty and then VAT is added to that total. A similar situation prevails with alcoholic drinks.

But this demonstrates the iniquity of Value added Tax. 

DullGreyGuy

frozenmonkey said:

Morning folks,

I've just received an email from my leasing company stating that I will have to start paying Vehicle Tax on the EV that I lease from them.  Fine no problem with that.

They've also stated they will be charging me VAT on this...wondering if anyone knows whether this is right?  I didn't think you paid Tax on Tax.

Yes it's right because they arent selling you the road tax but they are selling you the service of them buying the road tax for you so they have to charge VAT for the service they are providing. 

You pay tax on tax all the time. Buy anything from overseas thats over £135 and you will have to pay Duty and then you pay VAT on the sum of the items value, postage and duty, so tax on tax.

Mildly_Miffed

DullGreyGuy said:

frozenmonkey said:

Morning folks,

I've just received an email from my leasing company stating that I will have to start paying Vehicle Tax on the EV that I lease from them.  Fine no problem with that.

They've also stated they will be charging me VAT on this...wondering if anyone knows whether this is right?  I didn't think you paid Tax on Tax.

Yes it's right because they arent selling you the road tax but they are selling you the service of them buying the road tax for you so they have to charge VAT for the service they are providing. 

You pay tax on tax all the time. Buy anything from overseas thats over £135 and you will have to pay Duty and then you pay VAT on the sum of the items value, postage and duty, so tax on tax.

^ This.

Same if you use a third party to pay Royal Mail postage for you - RM don't charge VAT, but the third party have to on their service.

If the car had been leased originally with tax included, this would be a non-issue because it would have been written in from the start. It's only because the lease didn't originally include tax but now does that you can see the VAT on their service.

facade

It is only on their service though, not the full amount of the tax.

DullGreyGuy

facade said:

It is only on their service though, not the full amount of the tax.

The whole amount is their service... its the same when I buy a train ticket and invoice my client as an expense... train tickets are zero rated for VAT but I have to charge them 20% VAT because Im not selling them a train ticket I am selling them the process of me buying a train ticket and I am going to charge them the same amount as the train ticket cost me because I am not going to be out of pocket because they want me to visit some conference on their behalf. 

facade

DullGreyGuy said:

facade said:

It is only on their service though, not the full amount of the tax.

The whole amount is their service... its the same when I buy a train ticket and invoice my client as an expense... train tickets are zero rated for VAT but I have to charge them 20% VAT because Im not selling them a train ticket I am selling them the process of me buying a train ticket and I am going to charge them the same amount as the train ticket cost me because I am not going to be out of pocket because they want me to visit some conference on their behalf. 

Really?- now I understand the OP's complaint!

It is because the lease company is the registered keeper and is responsible for paying the tax not the customer, so it can't be treated as a disbursement.

https://www.gov.uk/guidance/vat-costs-or-disbursements-passed-to-customers

To treat a payment as a disbursement all of the following must apply:

• you paid the supplier on your customer’s behalf and acted as the agent of your customer
• your customer received, used or had the benefit of the goods or services you paid for on their behalf
• it was your customer’s responsibility to pay for the goods or services, not yours
• you had permission from your customer to make the payment
• your customer knew that the goods or services were from another supplier, not from you
• you show the costs separately on your invoice
• you pass on the exact amount of each cost to your customer when you invoice them
• the goods and services you paid for are in addition to the cost of your own services

The admin fee that the lease company can/do charge for taxing it will attract VAT, but is the same as when the car was zero tax.