When you purchase a car it is not possible to recover the VAT included in the purchase price unless you can demonstrate that private use of the vehicle is impossible. In most cases this restricts VAT recovery to cars or vehicles used as taxis, for driving instruction or self-drive hire.
If you use the flat rate scheme watch out for disposals of cars. Even if you did not recover VAT when you purchased the car, when you sell it the proceeds have to be included in your takings.
VAT is recoverable on vans to the extent that they are used in the business. So if a sole trader or partnership purchased a van, the related VAT would be recoverable in full only if the van was used wholly for business. If there is any private use of the van the input tax recovery should be apportioned.
When a van is sold, VAT must always be accounted for on the proceeds, whether it is sold to a business or private individual.
For those operating the flat rate scheme, it will normally be best to separate out the van on purchase (provided it costs more than £2,000 including VAT) and recover the VAT on it, accounting for VAT normally (at the full rate) on the subsequent sale. Otherwise the VAT on purchase would be blocked, while the proceeds would still attract flat rate VAT.
Please contact us if you have any queries regarding this or other VAT matters.