Requirements for VAT recovery

If you are considering purchasing a car for business purposes and recovering the input VAT, it is important to consider the requirements and to ensure you are meeting HMRC’s conditions.

The two main conditions which must be met are:

  • The car must be used exclusively for business purposes
  • It must not be made available for private use

Furthermore, the intended use of the car, at the date of purchase, must be recorded and there should be a legal impediment and restriction to prevent private use of the car. There should also be a physical impediment in place designed to obstruct access to the car so it cannot be made available for private use.

For clarification, the VAT block only applies to cars and a car for VAT purposes is any motor vehicle of a kind normally used on public roads which has three or more wheels and either:

  • Is constructed or adapted mainly for carrying passengers
  • Has roofed accommodation to the rear of driver’s seat that is fitted with side windows or that is constructed or adapted for the fitting of side windows

Proving only business use of the vehicle

It is essential that when the car is purchased by the business it must not be available for private use if you wish to recover the input VAT. HMRC will regularly challenge this and may ask the following questions:

Question 1: What is your trade and business and what role will the car play and how will it be used in that business?

Question 2: Is the car not available for private use by directors and employees?

Question 3: How have the directors and employees been prevented from using the car privately?

Question 4: On the days and evenings when the car is not used for business purposes, where will it be kept?

Question 5: Where are the keys for the car kept?

Question 6: Has a mileage log been completed after each use of the wedding car, and will it be continued to be completed in the future? *

*The mileage log should be completed as follows:

  • Date of journey:
  • Name of employee who used vehicle:
  • Purpose of journey:
  • From where and to:
  • Miles at start of journey
  • Miles at end of journey
  • Signature of employee or director:

As you can see from the questions asked and details required, it would be very difficult to recover the input VAT on a car that is used for private purposes.

How to claim successfully

An example of a business owner successfully claiming back input VAT on the purchase of a car can be seen in Barry John Graham. Mr Graham purchased three cars for his children to use when representing his business. A contract was drawn up which the children signed agreeing to never use the cars for private purposes. Furthermore, Mr Graham kept the keys to the cars in a safe which only he knew the combination to and which he regularly changed. Therefore, there was both a legal and physical impediment in place to restrict the use of the cars for non-business reasons.

Mr Graham won his claim to recover the input VAT as HMRC produced no evidence that the cars were allowed to be used privately.

It is certainly not an easy task to recover input VAT on the purchase of a car for business purposes and is it essential that legal and physical impediments are put in place at the time of purchase, to ensure that the car is not used privately. If you fall afoul of this, you could be liable to pay the input VAT, which could amount to thousands of pounds.

As always, if you would like any further information regarding the above, please feel free to contact our offices by email