What is VAT?
Value Added Tax (VAT) is a fundamental part of the UK’s taxation system, impacting various aspects of our daily lives, including car leasing and subscription services. VAT is a consumption tax levied on the value added to goods and services at each stage of production or distribution. In the context of car leasing and subscriptions in the UK, VAT plays a crucial role in ensuring the fair and equitable taxation of these services.
In this article, we will discuss why VAT is essential in these contexts and how businesses can reclaim a portion of the VAT paid on the rental element of vehicles.
VAT and Car Leasing
VAT is applicable to car leasing in the UK as it is to most goods and services. When individuals or businesses lease a vehicle, they are essentially renting it for a specified period. The lease payments made during this period are considered as taxable supplies and are subject to VAT. This taxation ensures that the government can generate revenue from a service that benefits from public infrastructure and services, such as road maintenance, traffic regulation, and emergency services.
The importance of VAT in car leasing lies in its role in contributing to the overall tax revenue of the UK government. These revenues are used to fund public services, healthcare, education, and various infrastructure projects that benefit society as a whole.
One crucial aspect of VAT on car leasing in the UK is that businesses have the opportunity to reclaim a significant portion of the VAT paid on the rental element of the vehicle. This is particularly important because it encourages businesses to invest in their fleets and provides an incentive to support company vehicle leasing.
Businesses in the UK can typically reclaim at least 50% of the VAT paid on the rental element of the vehicle. This means that a significant portion of the VAT paid during the lease period can be recovered, reducing the overall cost of providing company vehicles to employees. This benefit is advantageous not only for the companies themselves but also for their employees who rely on these vehicles for work-related activities.
Reclaiming VAT on car leasing helps to alleviate the financial burden on businesses, making it more cost-effective to provide company vehicles as a part of their benefits packages. This, in turn, can improve employee satisfaction and contribute to a more competitive and productive workforce.
VAT and Car Subscription Services
In recent years, car subscription services have gained popularity in the UK. These services offer an alternative to traditional car ownership and leasing, providing greater flexibility and convenience. VAT is also applied to car subscription services to ensure fairness and equity in the tax system.
Similar to car leasing, the application of VAT on subscription services is important for generating government revenue and maintaining a level playing field for businesses operating in the automotive industry. It ensures that these services are treated consistently under the tax regime.
Can I claim the VAT back as an individual?
If you are leasing or subscribing to a vehicle as a person and you are not a sole trader or part of a partnership, you are unable to claim back the VAT on the vehicle.
If you are a sole trader or part of a patnership, you may be able to register for VAT and reclaim at least 50% of this element back. It is always best to check with your accountant to see if it is worthwhile.
I’m an Expat customer coming to the UK, can I claim the VAT back?
As an Expat customer coming to the UK, leasing and car subscriptions can be difficult to understand. On our website (as we’ll explain below) most of our prices are advertised as plus VAT, but as an individual you are not able to claim back the VAT on the vehicle rental.
Even as an Expat customer, the VAT is payable in most circumstances and this must be taken into consideration before subscribing or leasing a vehicle with any of the providers.
Why do you display price excluding VAT?
The majority of our customer base is companies and businesses in the UK who utilise our fleet due to the short-term nature of our products and services.
Many of the headline rates are plus VAT, but if you click on to each vehicle the prices can be shown inclusive of VAT, we are obliged to do this for compliance reasons.
If you would like any further information on our products and services, please do speak to the team on 01332 290173 or use the ENQUIRY FORM at the bottom of this article.
If you need assistance as a business with VAT registration we would highly recommend speaking to your accountants.