As a general rule you cannot claim VAT on the purchase of a car except in the following circumstances:
1. the car is effectively the business (ie the car is to be used as a taxi, a self-drive hire vehicle or a driving instruction vehicle); or
2. the car will be used solely for business purpose, with no private use at all, AND is not available for private use.
HMRC apply these rules very strictly and if VAT is claimed on the purchase of a car HMRC will thoroughly consider whether the VAT is claimable, particularly in regards to under item 2 above where they will require hard evidence to show, without question, that the car meets the no private use and not available for private use rules.
The rules are slightly different if you lease a car.
If you lease a car that is to be used solely for the business without any private use and is not available for private use then you will be able to claim all the VAT incurred on the lease. However, if you lease a car that is to be used both for the business and privately or is available for private use you will be able to claim 50% of the VAT incurred on the lease.
VAT can also be claimed on fuel purchased for a car that is used in the business but only regarding fuel used during the business use of the car. VAT incurred on fuel for private use of the car cannot be claimed.
Q. I use my car for the journey from home to the office and then for all business trips from my office during the day. Can I claim the VAT on the purchase of the car?
No. The journey from home to work and vice versa is a private journey and as the car is also kept at home it is also ‘available for private use’.
Q. How can I show that the car is not ‘available for private use’?
The general rule here is that you must be able to show that you have taken practical and effective steps to prohibit the private use of the vehicle.
Unfortunately this requirement is, in practice, virtually impossible for an individual as the mere fact that the car is likely to be kept at home means that it is available for private use, an individual cannot impose and enforce a prohibition on himself and it is not sufficient to simply have an alternative car available for private use.
An option available to a Ltd Co and that has previously been successful at Tribunal is for a resolution to be made and recorded at a board level that a car is for business use only and that if an employee/director uses the car for private use this would constitute a breach of the employee’s terms of employment.
Such a resolution could also be included within the company’s employees’ employment contracts.
Q. I have purchased a car which is to be used in my company as a pool car. Can I claim the VAT?
Yes, you can claim all the VAT provided the car:
1. is normally kept overnight at your place of business, provided this is not your home; &
2. is not allocated to any one individual; &
3. is generally available for all employees of the business to use for the purposes of the business.
Q. At the time I purchased the car I was able to claim the VAT as it was wholly for business purpose but I have now begun to use it for private use as well. Do I have to pay back some of the VAT I previously claimed?
No. You must instead treat the car as if it has now been sold to yourself (a self-supply) and account for VAT on the market value of the car at the time you began using it for private use.
Q. If I sell a car that I could claim the VAT on when I purchased it do I have to charge VAT on the sale?
Yes. As you could claim the VAT on the purchase you must charge and declare VAT on the full selling price.
Q. If I sell a car that I was not allowed to claim the VAT on when I purchased it do I have to charge VAT on the sale?
No, the sale of the car is treated as exempt.
Q. Do the same restrictions on recovering VAT on cars apply to commercial vehicles?
No. You will generally be able to recover the VAT in full, even if you keep the van at home or it has some minor private use.
However, if you have purchased the type of commercial vehicle that is often used for private as well as business use, such as a motor cycle or double cab pick-up and the private use is likely to be more than minor, you must either:
o Apportion the VAT on the purchase between business and private use and claim the proportion of the VAT that is consider relevant to business use (note: the apportionment should provide a fair and reasonable result); or
o Claim all the VAT on the purchase and account for VAT on a reasonably estimated value for the private use in each VAT period.
Q. I use my own private car in my business. Can I claim VAT on the fuel I use in my own car?
Yes, but you must have a method of accounting for any privately used fuel.
The easiest way to do this is for you to claim the VAT on all the fuel used in the car and pay a Road Fuel Scale Charge (RFSC) each VAT period. A RFSC is a charge published by HMRC and is based upon the CO2 emissions of the car.
Alternatively you must keep a detailed mileage log to show the amount of business and private mileage you have done. At the VAT period end you can then use this log to calculate the percentage of business miles you have done in the VAT period and claim that percentage of the total VAT incurred on fuel purchased in the VAT period.
Q. I pay a mileage allowance to my employees. Can I claim VAT on the mileage allowance?
Yes, but a mileage allowance covers both fuel costs and general ‘wear and tear’ of the car. You are only able to claim VAT in regards to the fuel element of the mileage allowance you pay and should note that the fuel element is inclusive of VAT.
Q. I use my personal car for business journeys and have had to have some repairs. Can I claim the VAT on the repairs?
Yes. If you use your personal car for business use you can recover the VAT charged to you on the cost of general repair and maintenance as long as the business has paid for them.
Current HMRC guidance is provided on www.gov.uk in
VAT Notice – 700/64
HMRC Manuals – VAT Basics – Input Tax
VAT – What is VAT?
VAT on Business Entertaining
VAT on Conversions
HMRC is Tackling Online VAT Fraud
0116 274 9123