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When can i reclaim the Vat on a van HP purchase?

When can i reclaim the Vat on a van HP purchase?

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If I were to buy a van on HP, at what point can I reclaim the vat?  Do i record the input vat of £2,750 when I record the asset and the hp creditor, or with the deposit and each intalment made?

The scenario is as follows:-

Van Cost £13,750, plus £2,750 vat = £16,500

Deposit of £4,500 to be made. Balance remaining of £12,000, plus HP interest of £2,938 = £14,938 to be paid. 

1st instalment is £504, followed by 46 instalments of £305 and a final payment of £404.

Thanks for any help.  

Replies (8)

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Scalloway Castle
By scalloway
13th Nov 2011 16:16

If you have an invoice

If you have a valid VAT invoice (ie not a pro forma) you can claim the VAT on your next return.

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By Richard Willis
13th Nov 2011 18:58


The agreement, listing all such details, constitutes a VAT invoice and you can claim all the VAT once signed off by both parties.  Strangely your deposit doesn't appear to represent any particular %age.  They are usually worked out as #% + al the VAT.  This is so as to prevent a financial advantage on the reclaim of the VAT.

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By Old Greying Accountant
13th Nov 2011 20:54

Just to put it in laymans terms ...

... you have borrowed money from a finance company and simultaneously paid it the the vendor of the van.

You can therefore reclaim all the VAT on your next VAT return regardless of whether you are on invoice accounting, cash accounting, or even (as it is over £2000) on the fixed rate scheme.

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By zebaa
13th Nov 2011 21:13

Usually at the start

It has been my experience that the motor trader requires (a) the full vat (b) road tax (c) delivery cost (d) a deposit, which may be zero or some other sum. You then get an invoice and reclaim the vat on your next vat return. There is no vat on your loan repayment. Lastly, you can claim the interest part of the repayment as a cost on your tax return (but this itself may be subject to a % private use deduction if you are a sole trader, which I suspect you are).

Ha...just seen OGA beat me to it.

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By David160
15th Nov 2011 10:31

Contrast this with a lease

If you buy a van (or car or equipment etc.) by lease then you claim VAT back on each repayment; you get a VAT invoice from the finance company to allow you to do this. It details each repayment and the amount of VAT to claim on each repayment. There is a normally restriction on claims for cars; this restriction does not apply to vans and equipment etc.

Contrast the situation for HP. where VAT Is claimed on the initial cost of the van, equipment etc. VAT is not normally claimable on cars.

Some contracts that are described as hire purchase are really leases and some described as leases are really hire purchase; the paperwork for each contract needs to be examined to determine which it is, so that the correct VAT Treatment can be applied.

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By froth
26th Aug 2014 17:33

Sorry to resurrect an old thread here, but I couldn't find an exact answer to my scenario anywhere else at this time.

I have what is (presumably) a hire purchase agreement. It is actually called a Mercedes Benz option to purchase agreement.

Here is the deal:

Total cash price of vehicle (inc VAT) £23994

Less Deposit                                 £6000

Balance Financed                          £17994

Add Finance Charges                    £4428.52

Balance Payable                           £22,422.52

Total Amount Payable                   £28,422.52


The repayments have been calculated as follows:

48 x monthly payments of 304.74 = £14,627.52

An additional final rental of              £7,550.00 due at the end of the contract


There is also a note in the agreement which states "At the end of the hire period you have the following options (subject to the terms of the agreement):

a. To obtain title to the vehicle by making the Optional Purchase Payment and Purchase Activation fee.

b. Not to pay the Final Rental and to return the vehicle to Mercedez Benz.

So, even though this vehicle is going to be leased until the point where the final payment is made, I assume for accounting purposes it should be treated as a HP agreement ie the vehicle should go straight into the Balance Sheet at its cost of £19,995, input VAT can be reclaimed immediately of £3999 and the liability owing for the vehicle (including the final option fee) should be shown as a Liability in the Balance Sheet.

Please can anybody confirm my assumption is correct, or point out why it is wrong if that is the case.

This vehicle (a van) has been purchased by a limited company, not a sole trader so my additional question is, should the sole director/shareholder have any private use of this vehicle whatsoever then should none of the input VAT be reclaimed and he would be obliged to complete a P11D because he would be receiving a benefit in kind?

Thanks in advance for any help



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By Accounting-rookie
18th Apr 2015 18:35

I have a similar question

Anyone help with Froths question?


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By Eric T
23rd Jul 2015 09:30


Rather late in replying but that Mercedes agreement looks to be more in the nature of a leasing agreement/rental agreement rather than a simple HP agreement.


On that basis, VAT would not be reclaimable on the asset price but on the regular rental payments.

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