We often get queries regarding the use of a car for private and business use and if this is something that VAT can be reclaimed on, so we thought we would cover the topic in the newsletter.
The VAT tax rules are clear, input tax cannot be claimed on the purchase of a new or used car that is made available for any private use.

However, input tax can usually be claimed on cars used as a tool of a trade, this includes a car used by a driving school, taxi firm or private car hire business, even if there is minor private use.
If you lease a car you can claim 50% of the cost if it is also used privately or 100% if it is classed as a tool of the trade.

This rule was tested in a recent tax case of Maddison and Ben Firth T/A Church Farm v HMRC 2002.
Mr and Mrs Firth had a business registered for VAT classed as ‘subcontracting glam/camping, weddings and events’ – mainly organising weddings and other events. The business claimed input tax on the purchase of two new cars, on the basis that they were used exclusively for business purposes and not available for private use.
However, the Tribunal agreed with HMRC that there was insufficient evidence to prove a business-only intention. Importantly they came to this conclusion based on the insurance policy which included insurance for ‘Social, Domestic and Pleasure’ (SDP).

Although Mr Firth explained that it was very difficult to obtain insurance without SDP, the option was still available and that was enough to refuse the claim. The Tribunal stated that the fact that the insurance policies did not cover the carrying of passengers on a commercial charge basis was an important point and refused the claim.

In addition, although there was a valid council issued private operator licence, private hire was not covered by the policy. It also did not help Mr Firth’s case that although an Audi TT has five seats it is, in effect, a two-seat car and as such not a practical car for private hire (one of the exceptions to the VAT rules).

Finally, HMRC refused a claim for the VAT input on a personalised number plate fixed to a motorcycle, finding that it was personalised to include Mr Firth’s first name. The claim was for business advertising but HMRC disagreed and refused the claim as the number plate (BS70 BEN) did not refer to the business named ‘Church Farm’.

As ever in such cases, looking at the facts, this case should probably not have reached as far as a Tribunal Hearing. However, this case underlines the importance of ‘intention’ and of documents in supporting any claim for input VAT!!

If you have any queries on this article or reclaiming VAT on a car, please get in touch.