VAT on Vehicle Tax

prowla

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.

So how much are they charging for said service?

facade

I don't see why you shouldn't be able to reclaim the VAT on VED if the car is used exclusively for business purposes, or the relevant proportion if it isn't as it is a running expense, but cars are a bit of a VAT minefield, so I'd ask the accountant.

Early days yet, but I think that the forthcoming PPM charge will also attract VAT, as it will be payable by the registered keeper- the lease company, and passed on to you as a re-charge.

WellKnownSid

milleniumaire said:

As VAT has been charged on the VED, can this VAT be claimed back by my company?  I had assumed so, but Googling suggests this isn't the case.  I'll have to speak to my accountant on Monday, but just wondered if anyone out there would know.

I suspect you'll be able to claim the same proportion of VAT that you already claim on the whole lease.

Mildly_Miffed

facade said:

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.

57.95p/litre, unchanged since 2010... except for the short-term Ukraine 5p reduction introduced in 2022 - which is being phased out by 2027, to take it back to that 2010 rate...

If it'd been increased with inflation since 2010, it'd now be 90.4p

facade

Mildly_Miffed said:

facade said:

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.

57.95p/litre, unchanged since 2010... except for the short-term Ukraine 5p reduction introduced in 2022 - which is being phased out by 2027, to take it back to that 2010 rate...

If it'd been increased with inflation since 2010, it'd now be 90.4p

My point was that as the price of petrol increases with "inflation" the VAT take goes up by the same %, so there is no need to increase duty to rake in more cash, and they can magnanimously declare that they have done us a favour.

On the other hand, if duty increases to match inflation, then it makes inflation higher, providing positive feedback and the duty can increase more next time.....

milleniumaire

facade said:

I don't see why you shouldn't be able to reclaim the VAT on VED if the car is used exclusively for business purposes, or the relevant proportion if it isn't as it is a running expense, but cars are a bit of a VAT minefield, so I'd ask the accountant.

Early days yet, but I think that the forthcoming PPM charge will also attract VAT, as it will be payable by the registered keeper- the lease company, and passed on to you as a re-charge.

I asked my accountant and he is under the impression the lease company should NOT be charging VAT in the first place.  This is based on the following:

"As VED is a statutory tax, it is treated as outside the scope of VAT. HMRC guidance makes clear that statutory charges which are passed through without mark-up are not consideration for a supply (see HMRC VAT Supply and Consideration Manual VATSC06 series, and VAT Notice 700, section 25.3 on statutory fees and disbursements).

HMRC have also confirmed to the vehicle leasing industry that VED recharged to a hirer must not be standard-rated.

Under VATA 1994, s.5(2)(a), a payment is only consideration for a taxable supply if it is “for a supply of goods or services.” VED is a statutory tax that arises by law and is not capable of being consideration for a supply made by a leasing company."

WellKnownSid

milleniumaire said:

facade said:

I don't see why you shouldn't be able to reclaim the VAT on VED if the car is used exclusively for business purposes, or the relevant proportion if it isn't as it is a running expense, but cars are a bit of a VAT minefield, so I'd ask the accountant.

Early days yet, but I think that the forthcoming PPM charge will also attract VAT, as it will be payable by the registered keeper- the lease company, and passed on to you as a re-charge.

I asked my accountant and he is under the impression the lease company should NOT be charging VAT in the first place.  This is based on the following:

"As VED is a statutory tax, it is treated as outside the scope of VAT. HMRC guidance makes clear that statutory charges which are passed through without mark-up are not consideration for a supply (see HMRC VAT Supply and Consideration Manual VATSC06 series, and VAT Notice 700, section 25.3 on statutory fees and disbursements).

HMRC have also confirmed to the vehicle leasing industry that VED recharged to a hirer must not be standard-rated.

Under VATA 1994, s.5(2)(a), a payment is only consideration for a taxable supply if it is “for a supply of goods or services.” VED is a statutory tax that arises by law and is not capable of being consideration for a supply made by a leasing company."

A cost cannot be considered a disbursement unless it is YOUR responsibility to pay it.  As the car does not belong to your company and instead the lease company is responsible for the VED - I don't believe it can be treated as such.

MyRealNameToo

milleniumaire said:

facade said:

I don't see why you shouldn't be able to reclaim the VAT on VED if the car is used exclusively for business purposes, or the relevant proportion if it isn't as it is a running expense, but cars are a bit of a VAT minefield, so I'd ask the accountant.

Early days yet, but I think that the forthcoming PPM charge will also attract VAT, as it will be payable by the registered keeper- the lease company, and passed on to you as a re-charge.

I asked my accountant and he is under the impression the lease company should NOT be charging VAT in the first place.  This is based on the following:

"As VED is a statutory tax, it is treated as outside the scope of VAT. HMRC guidance makes clear that statutory charges which are passed through without mark-up are not consideration for a supply (see HMRC VAT Supply and Consideration Manual VATSC06 series, and VAT Notice 700, section 25.3 on statutory fees and disbursements).

HMRC have also confirmed to the vehicle leasing industry that VED recharged to a hirer must not be standard-rated.

Under VATA 1994, s.5(2)(a), a payment is only consideration for a taxable supply if it is “for a supply of goods or services.” VED is a statutory tax that arises by law and is not capable of being consideration for a supply made by a leasing company."

25.3 on notice 700 is about exports? Helps if you quote the right section you believe supports your argument. 

25.1 lists a series of examples where a service provider incurs a VAT exempt or 0% rated service and has to charge vat at the standard rate to their client. It can only be a disbursement, which is something that can be passed through without VAT, if its paid on your behalf but VED isnt, its their responsibility to pay as the registered keeper of the vehicle. 

milleniumaire

I've spoken to my accountant again, who has now confirmed there isn't an issue with the Lease company charging VAT on a TAX and that my company can only claim 50% of the VAT back, since the car is used for personal use as well as business use.

What a great way to raise more taxes.  Tax a Tax.  Why wouldn't HMRC be in favour of this.

facade

milleniumaire said:

I've spoken to my accountant again, who has now confirmed there isn't an issue with the Lease company charging VAT on a TAX and that my company can only claim 50% of the VAT back, since the car is used for personal use as well as business use.

What a great way to raise more taxes.  Tax a Tax.  Why wouldn't HMRC be in favour of this.

We've mentioned this before, tax on tax isn't new. When you buy petrol the fuel duty is subject to VAT being a common motoring example.