Value Added Tax (VAT) is equivalent to sales tax in the United States. VAT is added to all taxable goods and services in the United Kingdom; a percentage of the price of an item is added to the sales price at the time of sale. This amount is then forwarded to the taxing authority.
According to Her Majesty's Customs and Excise (HMRC), a VAT qualifying item is an item that hasn't been subject to the full input tax block. That means your business can recover the VAT on the full purchase price. For example, all used car prices include VAT in the sticker price. This amount of VAT is called margin VAT, and is paid by the car dealer to the government; the consumer doesn't have to know how much tax is being paid. The VAT cannot be reclaimed on these items. However, if you purchase a VAT qualifying vehicle, you can claim back the VAT paid.
If you are a business and you are purchasing a car to use exclusively for business purposes, you can recover the VAT paid from the taxing authority. Cars listed as VAT qualifying are those cars sold with a separate VAT element, or VAT amount, so that business owners can reclaim back the VAT paid.
If you are a business owner and you want to claim back the VAT, you can ask the dealer for a VAT invoice. If you purchase a VAT qualifying vehicle, you should get a VAT invoice at the time of sale. A VAT invoice will list how much VAT you paid for the purchase. You must get a VAT invoice in order to reclaim the VAT from the taxing authority,
In order to reclaim VAT, you must be a VAT registered business. VAT registered businesses collect VAT and forward the VAT to the taxing authority. You don't have to register for VAT until you have a certain amount of turnover in your business (£70,000 as of September 2010). However, if you choose not to register, then you won't be able to claim the VAT back on qualifying purchases.
Types of VAT
There are four types of VAT: standard rate, reduced rate, zero rate and VAT exempt. Most items for commercial use will fall under the standard rate of VAT, including cars, office furniture and equipment. In order to figure out how much VAT is applicable to a particular item, you can look the item up in Rates of VAT on Different Goods and Services (see Resource section).