VAT on Cars - No Private Use Means Claim Succeeds

A little-reported case involving a claim to recover input VAT on the purchase of a car has opened the door a little further for a company that wants to have a car purely for business purposes.

The legislation which usually prevents the input VAT on the purchase of a car being recoverable is contained in the Value Added Tax (Input) Order 1992, SI 1992/3222, which stipulates that ‘the supply … to a taxable person of a motor car shall be excluded from any credit under section [25] of the Act’. However, there are exceptions to the exclusion, which include supplies to ‘a taxable person who intends to use the motor car exclusively for the purposes of a business carried on by him’.

This means that the taxable person must not intend to make it available (other than by letting it on hire) to any person (including, where the taxable person is an individual, to himself, or where the taxable person is a partnership, to a partner) for private use, whether or not for a consideration.

The case involved a small company in Wales that wanted the managing director to have a ‘good’ car for use when visiting customers around the UK. The company bought a Mercedes and minuted that the car was not to be used at all for private purposes. Over £5,000 in VAT was reclaimed, but the claim was refused.

The VAT Tribunal agreed that the taxpayer had satisfied the ‘relevant condition’ and that the VAT was recoverable. Customs appealed, but the Court backed the original decision of the Tribunal.

For a claim such as this to succeed, it is important to have proof of the ‘no private use’ decision in advance of the purchase of the car and for it to be complied with. Where this is not possible, you may wish to consider leasing, as this allows a partial recovery of VAT.