VAT-Free Cars for Export

The Buyer

When you appoint us to collect and ship the car, the dealer can only zero-rate the sale if you are what HMRC calls an overseas person. For a car buyer, that means:

• Someone who is not resident in the UK.
• A business with no establishment in the UK from which it makes taxable supplies. A business like that can qualify even if it is registered for VAT here.

A sale to a UK resident, or to a business with a place of business in the UK, cannot be zero-rated this way, even if the car goes straight from the dealer to the port. It can only be zero-rated if the dealer arranges the export itself, employing the shipping line or forwarder, or, for a UK resident moving abroad, if the car is bought under HMRC’s Personal Export Scheme.

The Car

HMRC’s export rules cover any motor vehicle, new or used, but there is only VAT to take off if the dealer charges VAT on the full price. The overview page, linked under Useful Links, explains which cars that applies to and what makes a used car VAT-qualifying. As a quick check:

• A new car: VAT on the full price, so it can all come off.
• A VAT-qualifying used car: VAT on the full price, so it can all come off in the same way.
• A car sold under the margin scheme: HMRC does not allow it to be zero-rated as an export, so there is nothing to take off. Example 3 below shows the figures.

The Seller

The seller must be a VAT-registered business that charges VAT on the car. A private seller adds no VAT to the price, so there is nothing to take off. Not every dealer will sell a car for export, so we check before you commit.

The car must also be sold to you, not to us. We are not VAT registered, so on a car we bought first the VAT the dealer charged us would stay in the price. What Goes Wrong, below, explains why.

If You Want to Drive the Car in the UK First

A car bought this way must not be used in the UK, apart from the trip to the port it leaves from. If you want to use it here before it goes, the route is HMRC’s Personal Export Scheme (VAT Notice 707), for overseas visitors and UK residents leaving the UK with the car. It has to be set up with a dealer that runs the scheme when you buy: HMRC does not refund the VAT on a car bought with VAT, even if it is exported later. Our Personal Export Scheme page, linked under Useful Links, explains the conditions and time limits.

UK VAT is 20% of the price before VAT, which is one sixth of a price that includes it. The prices below are round examples to show the arithmetic. They are not real prices.

Example 1: A New Car

A new car is priced at £30,000 including VAT. A sixth of that, £5,000, is VAT, so the price before VAT is £25,000. Sold to you free of VAT for export, the car costs £25,000, a saving of £5,000. If the dealer asks for a deposit equal to the VAT, you pay £5,000 more up front, and the dealer returns it once it holds proof of export.

Example 2: A VAT-Qualifying Used Car

A VAT-qualifying used car is priced at £18,000 including VAT. The VAT is a sixth, £3,000, and the price before VAT is £15,000. Sold to you free of VAT for export, it costs £15,000, a saving of £3,000.

Example 3: A Margin-Scheme Car

A used car sold under the margin scheme is priced at £15,000. Suppose the dealer paid £12,000 for it. The dealer owes VAT only on its £3,000 margin, and that VAT is a sixth of the margin: £500. HMRC does not allow a margin-scheme car to be zero-rated as an export, so the car costs £15,000 whether it is exported or not. There is no saving, and only £500 of the price was VAT in the first place.

The saving is on UK VAT only. Import duty and taxes in your country are still due when the car arrives, and they are yours to pay as the importer.

When the buyer, or an agent the buyer appoints such as us, collects the car and arranges the export, HMRC calls it an indirect export. For the dealer to zero-rate the sale:

• You must be an overseas person, as above.
• The car must not be used after it leaves the dealer, apart from the trip to the port or airport it leaves the UK from.
• The car must leave the UK within 3 months, and the dealer must have proof of export within 3 months too.
• The dealer must keep evidence of the sale as well as of the export, such as your order, its invoice and proof of payment.

If the dealer employs the shipping line or forwarder itself, it is a direct export instead, and the car must not be used or delivered in the UK before it goes.

When the 3 Months Start

Both limits run from the time of supply. In most cases that is the earlier of the day the car leaves the dealer and the day the dealer is paid in full, so paying in full starts the clock even if the car is still at the dealer. Under HMRC’s general tax point rules, an invoice issued or part of the price paid before then can start it earlier for that amount. That is why we ask the dealer when its clock starts, and plan the collection and the sailing before you pay anything towards the price.

What the Dealer May Ask For

HMRC tells dealers to confirm, before they zero-rate the sale and release the car, what proof of export they will receive. For an indirect export it suggests making the buyer’s duty to provide that proof part of the sales contract, and taking a deposit equal to the VAT as security. A dealer may do either or both, and we go through its terms with you before you commit.

Deposits

• A deposit equal to the VAT is security for the dealer. The dealer refunds it once it holds proof that the car has left the UK. The refund comes from the dealer, not from us.
• A deposit towards the price itself is treated like the rest of the price. It is free of VAT if the sale is. If the car is not exported, or the proof does not arrive, VAT is due on the whole price, deposit included.
• Our own deposit is separate from both. You pay us £1,000 to secure the deal, as on every car we source or buy for a customer. It counts towards our charges, not the car’s price, so it is not an extra fee and it is not a VAT deposit. If you cancel, our terms and conditions say what is refunded.

The dealer has to be able to show HMRC a clear trail from the sale to the export. Taken together, the documents must identify the dealer, you and the car, give the same value for it throughout, and show where it went, how and by which route. A vague or contradictory description or value is not acceptable. For an export arranged by the buyer, copies of the shipping documents on their own are not enough.

Before the Car Leaves the Dealer

• Your written order, giving your name and address and the address the car is going to.
• The dealer’s invoice to you, without VAT, showing the invoice number, your name and a full description of the car. The value on it must match the value on the export declaration.
• Proof that you have paid for the car.
• One government-issued photo ID and one utility bill showing your address, which we need for the customs entries and our anti-money-laundering checks. The dealer may ask for proof of your address too, as it can only zero-rate a sale to someone overseas.

After the Car Leaves the UK

We send the dealer:

• The reference of the UK export declaration (its MRN or DUCR). Once the customs system confirms the car has departed, this is HMRC’s official evidence of export.
• The bill of lading or sea waybill, or the air waybill if the car goes by air.
• The collection and shipping details: the date the car left the dealer, the haulier, the registration of the collecting vehicle and the driver’s name and signature, the port it left from, the shipping line and sailing date, and the container number if it went by container.

We send them as soon as the car has left, because the dealer needs them within the same 3 months. The dealer must keep them for 6 years.

If a condition is missed, the sale cannot be zero-rated and VAT is due on it. HMRC holds the dealer responsible: the dealer must pay HMRC the VAT, a sixth of what it was paid for the car. HMRC also tells overseas buyers who arrange their own export that if the proof does not reach the dealer in time, the dealer will charge them the VAT. So although the dealer owes the VAT to HMRC, the cost comes back to you: the dealer keeps the VAT deposit, or charges you the VAT.

• The car is used in the UK. Any use apart from the trip to the departure port rules out zero-rating. A car you want to drive here first has to go through the Personal Export Scheme, above.
• The car leaves late, or the proof arrives late. Once 3 months have passed from the time of supply, the dealer must account for the VAT. If the car is later exported unused and the dealer then gets the proof, it can zero-rate the sale after all and correct its VAT account. Whether it then refunds you is between you and the dealer.
• The proof of export is missing or does not stand up. If the documents do not show the car leaving the UK in time, or the car, value or route on them do not match, the dealer is liable for the VAT.
• The car is lost, stolen or destroyed in the UK after it has been collected. On an export arranged by the buyer, VAT is then due on the sale.
• The car is sold to us first. When a car passes through more than one sale before it leaves, only the sale to the overseas buyer can be zero-rated, whoever arranges the export, and a sale to our company is a sale to a business established in the UK, which carries VAT. We are not VAT registered, so that VAT stays in the price. The same applies to a car we buy for you at auction.

We are not VAT registered, so in none of these cases can the VAT come back through us. That is why we settle the dealer’s export terms with you before you pay the dealer anything.

The dealer, its accountant or HMRC can confirm how the rules apply to a particular sale.

You pay the dealer for the car directly, along with any deposit it asks for. You pay us for our part: finding the car if you need us to, agreeing the export terms with the dealer, collecting the car, making the export declaration, shipping it and sending the dealer the proof of export. From collection until we hand the car to the port or carrier for loading, it is in our care and covered by our motor trade insurance.

Our standard price covers the UK side and the sea leg to your destination port. Air freight is quoted per job. Collection from the dealer at £1 per mile, marine insurance on container shipments, any pre-export inspection your country requires, and clearance, registration and delivery at your destination through a local agent are quoted separately. Import duty and taxes in your country are yours to pay as the importer. We are not VAT registered, so there is no VAT on our charges.

A £1,000 deposit paid to us secures the deal and counts towards our charges. It is separate from any deposit the dealer takes. The balance of our charges is due in cleared funds before the car is loaded. We accept bank transfer, which we prefer, and card payments up to £5,000, with no fee on personal debit or credit cards. We do not accept letters of credit, cheques, money orders or cash.