The ability to reclaim VAT on the purchase or lease of a vehicle depends firstly on whether the vehicle is considered to be a car, as there are specific rules relating to reclaiming VAT on cars.
WHAT IS A CAR?
For VAT purposes a car is a motor vehicle normally used on public roads, with three or more wheels and either:
• Is constructed or adapted mainly for carrying passengers, or
• Has roofed accommodation to the rear of the driver’s seat and is fitted with side windows.
The following are not cars for VAT purposes:
• Vehicles capable of carrying only 1 person or suitable for carrying more than 12 people
• Caravans, ambulances and prison vans
• Vehicles with an unladen weight of 3 tonnes or more
• Specialised vehicles, such as ice cream vans, hearses or breakdown/recovery vehicles
• Vehicles with a payload of 1 tonne or more.
BUYING A CAR?
As a general rule, you cannot recover VAT on the purchase of a car.
However VAT can be recovered in full on:
• Cars bought as stock in the motor trade
• Cars bought for use primarily as a taxi, for providing driving instruction or self-drive hire
• Cars used exclusively for business purposes
• Pool cars, normally kept at the business address, not allocated to an individual and not kept at an employee’s home.
The issue of whether a car is used exclusively for business purposes is not as simple as it sounds. To be used exclusively for business, a car cannot be made available for private use. A car is available for private use if there is nothing preventing it being used privately. This is a stringent test and simply not having an intention to use the car privately is not sufficient, there must be something that precludes private use.
If a car is available for private use and you have a PCP agreement that represents a supply of goods, no VAT can be reclaimed.
LEASING A CAR
VAT on lease and hire charges can be reclaimed in full where the car is not available for private use.
Where the car is available for private use a 50% block on input VAT recovery applies, consequently only 50% of the input VAT can be reclaimed. If you have a PCP which is a deemed to be a hire contract, you may be able to recover half of the VAT incurred.
This block applies to the rental charges but not any optional charges for servicing.
Where a car is hired on a short term basis to replace an off the road company car, the same 50% block on input VAT recovery applies from day one. If a car is hired for business purposes for 10 days or less, not to replace a company car, the 50% block will not apply.
If you would like to discuss your own position or require further information, please get in touch.