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HMRC internal manual

VAT Relief for Disabled People Manual

HM Revenue & Customs
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The law
Motor vehicle hired to a disabled person [Item 14]
Excess mileage
Sale of ex-lease vehicles [Item 15]

The law

Item 14. Item 15 and Legal Notes (6) set out the VAT treatment of letting on hire of a motor vehicle to a disabled person and the subsequent sales of such vehicles.

Motor vehicle hired to a disabled person [Item 14]

The zero rate applies to the supply on hire of any motor vehicle, provided that all the following conditions are met:

  • the business performing the hire service is predominantly concerned with the provision of motor vehicles to disabled persons who are in receipt of the mobility component of disability living allowance or personal independence payment;
  • the vehicle is unused at the beginning of the letting period;
  • the period of let is at least three years;
  • the vehicle is supplied on hire to a disabled person;
  • the business is paid for the hire wholly or partly by receiving, direct from the Department for Work and Pensions (DWP) or the Ministry of Defence (MOD), on behalf of the lessee, specific ‘mobility’ allowances to which the lessee is entitled; and
  • the payments referred to in Note (7) comprise a ‘disability living allowance’, personal independence payment, armed forces independence payment or a ‘mobility supplement’.

The vehicle may be a standard production model. In practice, only vehicles leased by Motability meet all the conditions. This is because Motability operates within the criteria specified, meeting the DWP guidelines. Disabled people who are in receipt of the allowance or supplement mentioned above and who wish to lease a vehicle, simply choose a car from a dealer with whom Motability have an arrangement.

Motor vehicle manufacturers and dealers may be involved in supplying vehicles for the Motability scheme (which have to be supplied standard-rated to Motability) or in dealing with enquiries from or on behalf of disabled people, about the Motability arrangements.

Excess mileage

Motability excess mileage is further consideration for the zero-rated lease.

Sale of ex-lease vehicles [Item 15]

The first sale of an ex-lease vehicle is zero-rated provided the hire of the vehicle in question met all the conditions set out in Motor vehicle hired to a disabled person [Item 14]. Where a lease is terminated before the end of the three year hire period, for example because of illness or death, the onward sale of the vehicle will still be zero-rated.

In practice, Motability sell many of the ex-lease vehicles back to car dealers. Following the case of Peugeot Motor Co plc (15314), we accept that the subsequent sale by a car dealer of these motor vehicles is within the margin scheme for second-hand vehicles. Please see V1-23 Schemes for more information.