Newsletter Spring 2013

VAT car headaches

You claim back the VAT on your business expenses, so if you buy a new car for business, you should get some VAT back, shouldn’t you? Maybe you should, but you almost certainly don’t. The law forbids any recovery on a car unless it’s a ‘tool of the trade’ (used for car hire, taxi work or driving instruction), or else it’s ‘not intended to be made available for private use’. It doesn’t matter if you don’t actually use it for shopping or holidays – if you could do so, it’s available, and you can’t claim a penny of the input tax on the purchase.

A company might be able to claim, as long as it prohibits private use by any employee, for example by making a note in the Board minutes – but expect HMRC to check whether that prohibition is enforced.

If you lease a car which is partly used for business, you can claim 50% of the input tax on the lease charges, regardless of how much business use there actually is. If your business pays for servicing or repairs, it can claim all the VAT on that cost, provided there is some business use. So the rules are in turn very mean, half-and-half, and possibly too generous.

If VAT on cars puts you in a spin – or you think it might be possible to claim that you have 100% business use – we’ll be happy to check how much VAT you can claim.