FAQ's - What Does VAT Qualifying Mean?

When you lease a used car, if you or your company are VAT Registered there may be benefits for you to lease a "VAT Qualifying" (sometimes just called qualifying) used car.

Normally when a car is purchased VAT rules mean companies cannot reclaim the VAT if there is any element of personal use of the car.

Because lease companies buy cars wholly and exclusively for the business of leasing them they are able to reclaim VAT when they purchase a car, and then charge VAT on the rentals where VAT has been reclaimed at point of purchase. Only 50% of VAT charged on lease rentals can normally be reclaimed.

These rules mean that when a car is sold if the VAT was reclaimed when it was new, it must be accounted for on the sale proceeds, and therefore a VAT Sales invoice is raised by the selling party, which can enable the purchaser, if making a purchase for business use (e.g to lease the car) to reclaim the VAT on a used car.

Once a vehicle has "lost" VAT Qualifying status, it cannot be re-instated.

Typically ex fleet type vehicles can be found with VAT qualifying status, which can make these cars very attractive on a finance lease for VAT registered businesses.

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