VAT relief on adapted motor vehicles
Find out about the VAT relief available on certain adapted motor vehicles supplied to disabled people, charities and eligible bodies.
From 1st April 2017
Following a review and a public consultation over the VAT treatment of adapted motor vehicles by HMRC, a number of changes were made to the legislation with effect from 1 April 2017. These are:
- The introduction of a limit on the number of vehicles that can be purchased under the relief, with an eligible individual now being able to purchase only one vehicle that meets the qualifying conditions every 3 years
- Making customer eligibility declaration forms mandatory
- Making it mandatory for suppliers to send HMRC information about their zero rate supplies
- The introduction of a penalty that will apply to any person that provides an incorrect customer eligibility declaration form
To qualify for zero rating the adapted vehicle must be for the domestic or personal use of the disabled wheelchair user. This means normal everyday use by the disabled wheelchair user such as going to the shops, taking the children to school, travelling to and from work. It also includes incidental use at work, providing the main use remains as a private vehicle.
Suppliers cannot zero rate vehicles supplied to businesses regardless of who uses them or how they have been adapted or finance houses.
VAT relief is only allowable on one adapted vehicle, purchased (either outright or through a finance lease) for the personal use of the disabled wheelchair user, in a period of 3 years. This is known as the ‘3-year rule’. An individual or their nominated representative is required to certify with their supplier that they satisfy the 3-year rule and there are penalties for providing an incorrect customer eligibility declaration.
If an individual or their nominated representative wishes to purchase additional adapted vehicles within any 3-year period, then they can do so but they must pay the standard rate of VAT on the purchase of any subsequent vehicle.
Charities may buy eligible adapted vehicles VAT zero-rated if they’re making them available (whether by sale or otherwise) to individual disabled wheelchair users for their domestic or personal use.
Certain charities and other eligible bodies may also buy other adapted vehicles, this includes ambulances and vehicles adapted to transport disabled people.
A second-hand adapted vehicle can be zero-rated if the qualifying conditions are met. Although second-hand cars are usually sold on the Second-hand Margin Scheme, this is an optional scheme, not a mandatory one, and an eligible vehicle can be sold outside that scheme and normal VAT practice followed.
If a wheelchair user requires only minor adaptations to be made to their motor vehicle then the cost of the adaptations can be zero-rated, but the purchase of the vehicle would be at the standard rate of VAT.
If a disabled person who is not a wheelchair user needs a motor vehicle to be adapted to meet the needs of their condition, the adaptations can be zero-rated. The vehicle is not eligible for VAT relief but the adaptations may be zero-rated.