VAT Car and business

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.

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