How does VAT work with pre-reg 'new' car purchases?

I have a question in regards to a potential new car purchase and VAT implications. I have noticed a pre-reg vehicle for sale that has just 50 miles on the clock. The dealer said it could not be sold for three months. When discussing the price, the dealer mentioned you were basically getting the vehicle VAT-free through buying a pre-reg and this particular vehicle was not intended to be used as a demonstrator.

I understand that despite being effectively the second owner of this vehicle, I would still have to pay VAT on this vehicle. The HMRC website states that for VAT purposes you're selling a 'new' vehicle even if you've pre-registered it, that is you've registered it but you don't yet have a customer for it. Could you perhaps clarify this situation and whether what I am being told is true?

What is ‘delivery mileage’? If a demonstrator, would VAT be applicable given it is effectively a 'used' as opposed to a new car?

Finally, I'm seeing many vehicles of 6-12 months old with a variety of miles on them. Would these cars be VAT eligible or seem to incorporate VAT within their advertised price?

Asked on 5 January 2013 by DE, Sunbury-on-Thames

Answered by Honest John
The dealers have bought these cars as demonstrators at a considerable discount and part of the deal is that they are not allowed to register them to anyone else for three months. You could have a car if you didn't mind it being in the dealer's or a fleet’s name for three months, which may be illegal in itself because it means that any ANPR NIPs would be sent to the keeper of the car, not to you. See:

The VAT issue is a red herring. What you get is a discount equivalent to the VAT. Of course the VAT remains applied to the lower price of the car bringing the price you pay plus VAT to around 16.6 per cent less than list. Do not confuse 'VAT free' offers with VAT on ‘VAT qualifying’ cars. A member of the public can never buy a car VAT-free. A trader or a leasing or rental fleet can reclaim the VAT element of a VAT Qualifying car, but must then charge VAT at the rate of 20 per cent on whatever he sells the car for. So say he buys a VQ car for £10,000. He can reclaim £1667 VAT, but if he later sells the car for £11,000, he must then return £1833 in VAT to HM Customs & Excise.
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