Can I Reclaim VAT on My Car?
Can I Reclaim Vat On My Car
In most cases vat can be claimed on the purchases for your business if it is wholly, exclusively and necessarily for the purpose of trading and importantly can be supported by documentary evidence including an expense receipt made out to your vat registered business. There are exceptions to this rule one of them being the treatment of vat on the purchase of cars. A vat registered business owner will find it difficult to reclaim vat on the purchase of a car even if he claims it is for business only and HMRC will challenge most claims of car purchases. The question is how the small business owner can improve his chances, this article will outline the rules and definitions. If you have any questions regarding VAT services in London or the treatment of vat please contact London Bookkeepers for expert help.
There are extremely tight rules on the purchase of motor cars the only exceptions to the rules being cars purchased by second hand and new car dealers, vehicle leasing and hire organisations and other similar businesses. Special legislation forbids the claiming of input vat on car purchases that are used in your business. A claim may be made if you can prove to HMRC the following:
- The car must be used solely for business use.
- The car is not made available for private usage whatsoever.
- The car that has been purchased must have been purchased exclusively for the business. The expense receipt must be made payable to the vat registered business and NOT the business owner or wife or another family member. The recorded payment transaction must be shown in the business bank account and not a personal account. HMRC will look to challenge the claiming of input vat if it can show that the car is in any way for personal use.
- The car must in no way be allowed for personal use. HMRC is extremely suspicious and sceptical of vat being claimed on the purchase of cars and owners’ claims being that the vehicle is not being made available for private usage. Importantly, the car must not be made “available” for private use or HMRC will challenge the claiming of input vat on the purchase of the car.
Case Studies and Court Rulings:
The First Tier Tribunal tax courts in recent cases cases have ruled against the HMRC and accepted that an element of “private use” is possible without contravening the rule in relation to the car not being made available for private use. This is only when an unavoidable proportion of a business trip was made which involved a partly personal journey. In a recent court case Z contracts ltd v HMRC workers had detoured from their scheduled route to buy tobacco or food. The tax courts to the displeasure of HMRC inspectors ruled that journeys such as these were inevitable because the workers had to buy food and drink and take refreshment and that there was a minimal allowable use of personal use, so the vat claim was allowed to stand. The First-Tier tribunal stated it was a reasonable argument to claim that this could not be considered a private journey and the car was not purchased for personal use because of this small element of personal usage.
Plan the Journey Ahead:
At London Bookkeeping and Vat Services we believe prevention is better than a cure, so we advise our clients of the following when purchasing a car for business use.
- Always ensure you have an agreement with all employees which includes a clause stipulating that “all staff are banned and excluded from using the vehicle for personal use whether that be in company work time or outside the working hours set in their contract of employment. The vehicle must not be used for personal journeys under any circumstances and failure to do so will lead to disciplinary notice. Furthermore, the company vehicle must be returned to the company’s trading address and be parked overnight on its premises” after business use.
- A clause must be put into the contract of employment or a similar official document if the business is to be success in claiming the vat on the purchase of the vehicle. Anyone driving the vehicle must have signed the clause. Also, if it can be shown to HMRC or the courts if the claim is challenged that the company/individual has it written not only into contracts of employments but in other company notices such as staff handbooks, notices etc.
- If HMRC challenge the insurance contract on the vehicle as many insurers will allow for Social and Pleasure this only means the insurance covers it for that use. This is not a strong enough argument on the part of HMRC or an indication that the car was purchased as a private vehicle and so negating the vat claim. This should be strong resisted and defended as the First Tier Tribunal will almost certainly side with the taxpayer if this argument is used.