One of our most frequently asked questions from clients is this:
What counts as a qualifying car that business owners can recover VAT on?
One Of The Big Purchases
Purchasing a car is one of the big purchases in life, and so if there is a way for your business to recover the VAT that you’ve spent on it, then it’s important you find out!
You could be spending thousands extra!
It’s not uncommon for business owners to walk onto a forecourt to purchase a car, and be told confidently by the dealer that ‘yes, this car does qualify for VAT recovery’.
Only to get in touch with an accountant, like ourselves, and be told the truth. The car they have purchased probably won’t qualify.
Which begs the question…
What Counts As A Qualifying Car To Recover VAT?
A qualifying car is one that has not been subject to the full input tax block.
This basically means that your business, or any previous owners, have recovered the input tax on the purchase in full.
Generally speaking, the input tax on the purchase, import or acquisition of a car is usually blocked… and you can only recover it if you are using the car solely for business purposes.
However the block does not apply to a car to be used for one of the following purposes:
- as stock in trade of a motor manufacturer or dealer;
- primarily for the purposes of taxi hire; self drive hire or driving instruction, or
- exclusively for a business purpose and not made available for any private use.
If a car does not meet any of the above criteria, it does not qualify.
HMRC Are Strict So You’ll Require Lots Of Proof
HMRC are extremely strict on this issue, and therefore apply a catch-all input tax block on all cars purchased.
They do this because it is very likely that any car that is purchased will be used for personal use in some way shape or form.
Tax drivers, Uber drivers, or driving instructors often get a pass. They only need to show that their car will be used primarily for business use.
However, almost every other business owner will need to prove that they exclusively use the car for business use and that it is not available to be used privately.
This can be difficult… because most of the time, business cars are used for private use too.
HMRC take the view that a car bought by a business will always be available for private use, and so if you want to recover the VAT they need to see positive steps taken to prevent the car from being used privately.
Steps To Prove That A Car Is For Business Use Only
The more steps you can take to demonstrate that the car is used for business use alone, then the stronger your case will be with HMRC.
It’s extremely difficult, for example, to persuade HMRC that a car is used for business purposes if the business is run from home and the car is kept there too.
They will usually say, ‘likely story’.
However, there are ways to make it clear To HMRC when your vehicle is truly used for business use only. Here are some steps you can take:
- Insure the car for business use only.
- Record all of your miles and prove that they are for business purposes.
- The car is not allocated to an individual, but to a business instead.
- Place in a garage overnight at the business premises.
- Ensure that your employment contracts state that it is a disciplinary offence to use the car for anything other than business use.
For a more detailed and complete description, please visit the GOV website under a search for cars and input tax.
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