VAT on Car Tax (Road Fund Licence RFL) on Lease Car

LordPompeyD

Background

I lease a car through Drivalia. Road fund licence (VED) was included at zero cost last year, but this year the uplift is £195. Drivalia have invoiced me £195 plus VAT, so total £234. They are treating the VAT as payable on the basis that VED is part of a “contract hire service”, even though they are invoicing it separately.

I queried this because HMRC guidance suggests that when VED is recharged as a separate line item (rather than baked into the monthly rental), it is a statutory tax and should fall outside the scope of VAT. In other words, leasing companies can charge VAT on VED only when it is bundled into the rental. Once they invoice it separately, it is usually treated as a pass through cost with no VAT.

I even asked if they could roll it into the monthly rental, at which point VAT would be correct. They replied that they cannot change the monthly rental once the agreement has started. That would suggest it is a separate recharge, not part of the rental.

Summary of the Issue

• Drivalia have issued a standalone invoice for £195 VED.

• They have added 20% VAT on top.

• They state this is required by the Finance Act 1994 and that it is “industry standard”.

• The Finance Act covers VED rules, but not VAT treatment.

• HMRC guidance appears to say a separate VED recharge is outside the scope of VAT.

• Drivalia say they cannot include it in the monthly rental, which means it should not be a taxable supply.

I have asked them for the specific HMRC reference that allows VAT to be applied on a separate VED recharge and requested a refund of the VAT, but I am waiting for a response.

Has anyone else had this with Drivalia or other leasing companies?

• Have you been charged VAT on a separate RFL/VED uplift?

• Has anyone challenged it and had it corrected?

• Is there definitive HMRC guidance or a ruling that leasing firms are relying on that I may have missed?

Any insight would be appreciated as this feels out of step with how most leasing firms handle VED.

MyRealNameToo

https://forums.moneysavingexpert.com/discussion/6594439/vat-on-vehicle-tax

Discussed at length recently... its subject to VAT, it cannot be treated as a disbursement which would have allowed them to pass it through without VAT

Grumpy_chap

LordPompeyD said:

Background

I lease a car through Drivalia. Road fund licence (VED) was included at zero cost last year, but this year the uplift is £195. Drivalia have invoiced me £195 plus VAT, so total £234. They are treating the VAT as payable on the basis that VED is part of a “contract hire service”, even though they are invoicing it separately.

I queried this because HMRC guidance suggests that when VED is recharged as a separate line item (rather than baked into the monthly rental), it is a statutory tax and should fall outside the scope of VAT. In other words, leasing companies can charge VAT on VED only when it is bundled into the rental. Once they invoice it separately, it is usually treated as a pass through cost with no VAT.

I even asked if they could roll it into the monthly rental, at which point VAT would be correct. They replied that they cannot change the monthly rental once the agreement has started. That would suggest it is a separate recharge, not part of the rental.

Summary of the Issue

• Drivalia have issued a standalone invoice for £195 VED.

• They have added 20% VAT on top.

• They state this is required by the Finance Act 1994 and that it is “industry standard”.

• The Finance Act covers VED rules, but not VAT treatment.

• HMRC guidance appears to say a separate VED recharge is outside the scope of VAT.

• Drivalia say they cannot include it in the monthly rental, which means it should not be a taxable supply.

I have asked them for the specific HMRC reference that allows VAT to be applied on a separate VED recharge and requested a refund of the VAT, but I am waiting for a response.

Has anyone else had this with Drivalia or other leasing companies?

• Have you been charged VAT on a separate RFL/VED uplift?

• Has anyone challenged it and had it corrected?

• Is there definitive HMRC guidance or a ruling that leasing firms are relying on that I may have missed?

Any insight would be appreciated as this feels out of step with how most leasing firms handle VED.

Yes, it's how it is.  The link shared in the post above covers it well.