QUESTION: Our small family business has been trying to become more sustainable and one of the efforts to do so is to sell our existing fleet of company vehicles and replace with electric. Some of our employees and their family members are interested in buying the old vehicles. As a VAT registered business, will we need to charge VAT on the sale?
ANSWER: Many companies are starting their sustainability journey as they realise the sooner they start could give them a competitive edge. Perhaps you are one of these early adapters or maybe your larger customers are already asking you to provide details on your carbon footprint.
You haven’t mentioned what type of vehicles you are selling, i.e. are they vans, cars or a mixture of both? Whether you will need to charge VAT on the sale depends on the type of vehicle and the circumstances which you acquired each vehicle.
If it is a car that is being sold, you would not have been able to reclaim the VAT on its purchase price if there was any expected personal use. In this circumstance, no VAT should be charged as it is exempt from VAT.
However, if it is a van being sold or a car that you were able to reclaim the VAT on its original purchase price, you must charge VAT on the full sales price.
Maybe there was no VAT charged when the asset was bought, then you can use the VAT margin scheme to sell the vehicle. This means you do not charge VAT on the selling price but account for VAT on the difference between the selling price and the price you paid for it. As are likely to be selling the vehicle for less than what you paid to purchase it, the VAT to account for under the margin scheme will be nil.
It could be that you acquired the vehicle more than four years prior to the business’ VAT registration, and you were unable to reclaim the VAT incurred. If the VAT would have been recoverable, had it been within the time limits, then, despite the business not having been entitled to recover any VAT, the full selling price on the sale of the vehicle will be subject to VAT.
Aside from the VAT concern, given that you are selling the vehicles to employees, if any have previously enjoyed the use of the vehicle for non-business use you will need to calculate the taxable benefit in kind up until the date ownership transfers. Should any employee pay less than full market value to acquire a vehicle, a separate taxable benefit will arise.
I would recommend you seek the advice of your tax advisor to make sure that you are compliant with all your obligations and allow you to focus on your business’ success.
- KellyAnne Murtagh (k.murtagh@fpmaab.com) is senior tax manager at FPM Accountants Ltd (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
