The 2011 VAT rise: what it means for car buyers

09/11/10

January 4 is a special day. It’s a red-letter moment for car buyers and sellers because the rate at which Value Added Tax is charged rises from 17.5% to 20%. Put simply, the cost of a £15,000 new car rises overnight by £400, writes Ray Castle of motors.co.uk.

If you’re looking for a new car now it’s wise to buy sooner, not later. But if you really can’t buy until next year, of if you’ve ordered but delivery (barring a miracle) won’t happen until 2011, there’s no need to feel that you’ve lost out.
Here we explain the whys and wherefores of VAT, how to avoid paying more than you need and, indeed, how to escape handing over anything to the tax-man (well, near as you can).

Buying second-hand
Provided that the car is properly second-hand, you need not pay VAT at the standard rate as part of the purchase. Pre-registered, delivery-mileage cars, although second-hand in the sense that they’ve had a previous owner, don’t count. But if the vehicle is at least a few months old and has covered a few hundreds of miles, a dealer selling it is liable to pay VAT at the usual rate only on whatever profit he takes from the deal. And of course, you’d expect him to recoup that much by adding it to the car’s asking price. If you from a private seller, however, there’s no VAT to pay.
If for whatever reason it suits you to pay VAT, ask dealers to include it in the sale and also to provide an invoice showing that it has been paid. Smaller independent traders may not oblige but for bigger outfits it shouldn’t present too much of a problem.

Alternatively, if you’ve buying a previously owned van from a dealer, you should expect VAT to be added to the price. In fact, it’s common for adverts to show prices with it.

Buying a new car but want to pay less VAT?
If you order now but the dealer can’t get the car to you before the New Year, there is a way to avoid the Jan 1 rise. So long as you pay in full before December 31 and receive a VAT receipt to prove it, you’ll be hit only for 17.5%. But for this to happen, we're told that the car must usually have been built and awaiting delivery.

Some words of caution, though. Not every dealer will agree to this. Each will have monthly and yearly sales targets to reach and they may not wish a huge tally of sales in December and meagre ones for the early part of 2011.

And handing over the full amount before you’ve seen the car mayn’t serve you best if it doesn’t turn up when promised or is faulty. Call us cautious if you must, but we’d not pay more than a deposit until we’d seen our purchase and checked it over.

Hot deals right now
Depending on the make and model of new car you’re after, there are some huge savings on offer. Seat and Skoda currently offer ‘we’ll pay the VAT’ deals on most models, which give savings of up to £3000 on their dearest cars. And it even knocks £1480 off an entry model Skoda Fabia supermini that has a 1.2 petrol engine.

Citroen, meanwhile, is offering entry versions of its C3 supermini for £8990, a cut of £2000 from list price and up to £2500 discount on its C3 Picasso and C4 Picasso MPVs, depending on which model you pick. The C3 also comes with three year’s routine servicing pre-paid for you. Each of these offers carries small print, so read it carefully before proceeding.

Go to big-name dealer groups and you’ll find even bigger discounts. At Evans Halshaw, for instance, you’ll find Chevrolet’s Captiva seven –seat off-roader at £14,750, which is a £5875 reduction. Or if you’d rather have a cheap small car, the same company has a Renault Clio 1.2 Extreme three-door at £6991, saving £4049 list price when new. Each of these cars was pre-registered by the dealer, meaning that you will be listed at its second owner on its DVLA papers. But neither will have covered more than a few hundreds of miles and so will be in as-new condition and have most of its maker’s warranty cover from new still to run. In Chevrolet’s case, this will see you right until 2015.

However, if you want one of the most wanted cars just now – such as Audi’s new A1 small car, a Fiat 500 cabrio or a Peugeot RCZ coupe – you’ll have to settle for paying the asking price (or close to it) and probably paying 20% VAT. Indeed Audi’s price list for the A1 already show the higher VAT rate, although owners lucky enough to get their cars this year will see a refund, says the company.

For more great car buying advice and to view and buy new and second-hand cars, click on to motors.co.uk. Surf the web using your mobile phone? Go to http://mobile.motors.co.uk/ or text ‘motors’ to 65056 and we’ll send you a link. If you’ve an iPhone, you can download the motors.co.uk app for free. Go to the ‘utilities’ section of the iTunes store.