Businesses can claim back some of the VAT paid on lease rentals and service agreements if the vehicle has any private use. Blocked VAT refers to the adjusted total after VAT is reclaimed.
Blocked VAT refers to a situation where a car's Value Added Tax (VAT) has been blocked or cannot be reclaimed by the owner. In the UK, VAT is a tax added to the price of most goods and services, including cars.
When purchasing a car for business use, UK drivers can usually reclaim the VAT paid on the vehicle. However, there are certain instances where the VAT cannot be reclaimed, resulting in a blocked VAT. This can occur if the car is used for non-business purposes, such as personal use, or if it is used for exempt business activities.
Blocked VAT can also occur if the car is purchased under certain VAT schemes, such as the Margin Scheme for second-hand cars or the Global Accounting Scheme. These schemes have specific rules regarding VAT reclamation, and if the conditions are not met, the VAT may be blocked.
It's important for UK drivers to be aware of blocked VAT as it can affect the overall cost of owning and using a car. It's advisable to consult with a tax advisor or HM Revenue and Customs (HMRC) to understand the specific rules and regulations surrounding VAT reclamation to avoid any potential issues with blocked VAT.