VAT Reclaims FAQs
Whether a trader can reclaim VAT on the purchase of a vehicle depends on four things:
- Is the trader registered for VAT and generally entitled to claim VAT back?
- Is the vehicle to be used for the purposes of the business?
- Is the vehicle of a category that allows a repayment to be made?
- Was VAT charged on the sale of the vehicle?
If the answer to either question (1) and (2) is 'no', then there is no entitlement to reclaim VAT on any vehicle. If the answers to both questions is yes, then questions (3) and (4) need to be considered. The issues surrounding these questions are addressed below.
Categories of vehicles that allow for repayment of VAT
For practical purposes, an attempt has been made in this FAQ to match the VAT legislation to the VRT registration categories. Motor vehicles are divided into a number of different categories for VRT purposes. Vehicles may be liable to different rates of VRT and different registration procedures depending on the category. Vehicles used for commercial purposes will generally come within Categories B and C, and will be liable to VRT at lower rates than Category A vehicles. Further details of the VRT Categories are available on the Revenue website.
Vehicles within VRT Categories B & C, such as vans, lorries, pick-ups and crew-cabs are generally deductible for VAT, and these are often referred to as commercial vehicles for VAT purposes. However, buses or minibuses suitable for carrying between 12 and 16 persons (including the driver) are not generally deductible for VAT, although they come within Category C. (Buses or minibuses are not usually deductible in any case, as they are normally used for the exempt activity of carrying passengers. However, for example, a company that purchased a bus, suitable for carrying more than 16 persons, to transport its own staff between worksites would be entitled to reclaim some or all of the VAT.)
Up to the end of 2008, a trader was not able to recover any VAT on non-commercial or Category A vehicles [which includes cars (saloons, estates, hatchbacks, convertibles, coupes, MPVs, Jeeps, etc.) and minibuses with less than 12 permanently fitted passenger seats], even where they were 'company cars' or otherwise used for business purposes. Nor was there any entitlement to reclaim VAT on motorcycles, motor scooters or any similar vehicles. The only traders entitled to reclaim VAT on the purchase of any of these vehicles were motor dealers who purchased them as stock-in-trade; driving schools that purchased them for teaching purposes; car-hire companies that purchased them for hiring out; and financial services companies selling vehicles by hire-purchase arrangements, or leasing vehicles.
However, this position was changed with effect from 1 January 2009. With effect from that date, any VAT-registered trader other than those mentioned above is entitled to recover some of the VAT charged on the purchase or hire of vehicles coming within VRT Category A, subject to certain conditions, including:
- This provision only applies to vehicles registered from 1 January 2009;
- A maximum of 20% of the VAT incurred can be reclaimed. In the case of hire or leasing charges, a maximum of 20% of the VAT on the monthly leasing charges may be reclaimed;
- VAT can only be reclaimed for vehicles that have a level of CO2 emissions of less than 156g/km (i.e. CO2 emission bands A, B and C);
- At least 60% of the vehicle's use must be for business purposes;
- If the business is exempt from VAT (e.g. taxi, limousine and other passenger transport) then no VAT can be reclaimed. Partly exempt businesses can reclaim some, but not all, of the 20%;
- If VAT is reclaimed on a vehicle purchased under this provision, some or all of the VAT must be repaid to Revenue if the vehicle is disposed of (by sale or otherwise) within two years;
- There is no need to charge VAT on the disposal of the vehicle, even though VAT was reclaimed under this provision;
- If the vehicle is sold or traded-in to a motor-dealer, the special scheme for second-hand vehicles will apply, and the dealer can reclaim any residual VAT.
Full details of how the recovery of this VAT can be achieved, including examples, are available in the information leaflet Deduction of VAT for Certain Business Cars.
Vehicles that come within VRT Category D, and other vehicles not in Categories A, B, or C may be deductible, depending on whether the purchasers are registered for VAT and the uses to which the vehicles are put.
Was VAT charged on the vehicle?
VAT is generally charged, and therefore can be reclaimed, on all sales of business vehicles by motor dealers to VAT-registered traders. A VAT inoice must be issued by the dealer and retained by the trader. If the vehicle was purchased from a private individual, or from a trader who is not registered for VAT, then it will not be possible for them to issue a VAT invoice, and no VAT may be reclaimed. If the vehicle was second-hand, and was purchased from a motor dealer operating the special scheme for second-hand vehicles, there will be no entitlement to reclaim VAT, even though an invoice will be issued for the sale. Such invoices will include an endorsement to the effect that no VAT may be recovered.
While there is generally no provision for backdating VAT registration, you may claim a credit for the VAT content of stock for resale held at the beginning of the two-monthly taxable period for which you first registered. That is, if you register for VAT on the 10th of February, you may reclaim credit for stock held on or purchased from the 1st day of the preceeding month, January-February being a single tax period. However you are not entitled to a vat credit for capital goods i.e. plant & machinery, buildings, vehicles, fixtures, fittings etc., held at the time of registration.
In general, VAT refunds are calculated by 'direct attribution'. That is, VAT that is incurred on the purchase of goods (or services) used directly for a taxable activity can be reclaimed; VAT that is incurred on the purchase of goods (or services) used directly for an exempt activity cannot be reclaimed. A percentage of the VAT incurred on 'overhead' costs (e.g. light, heat, rent, etc.) used for both taxable and exempt activities can be recovered in the ratio of taxable to exempt turnover. This ratio must be agreed with your local Revenue District. There is a guide on the rules for apportioning VAT (PDF, 491KB) between taxable and exempt activities on the Revenue website.
Farmers who are not registered for VAT may reclaim VAT paid by them in relation to the construction, extension, alteration or reconstruction of farm buildings and structures or on land drainage and land reclamation. Claims for such repayment should be made on Form VAT 58 (PDF, 346KB) - Claim by Unregistered Farmer for Refund of Value-Added Tax, and sent to:
Office of the Revenue Commissioners,
VAT Unregistered Repayments,
Sarsfield, Francis Street, Limerick.
(Telephone Lo-call 1890 252449 or 00353 61 310310, Fax 00353 61 488095, email: firstname.lastname@example.org)