We often get asked about whether or not VAT can be reclaimed on the purchase of a car for business. In almost all cases, the answer to this is no. This post highlights the exceptions and practical points where a reclaim may be successful.
The exceptions include cars which are taxis or those used as driving school cars. Exceptions to a VAT for example special purpose cars such as purpose-built taxis and driving school vehicles. Another, more stringent situation where VAT can be reclaimed is where the car is used solely for business purposes and must not be available for private use.
The car must be normally kept at business premises outside working hours. If the car is kept at home of any employee or director then this will mean input VAT will not be allowed.
HMRC have contested VAT refund claims on the grounds that the employee driving the vehicle occasionally took detours, for example to go to a shop or buy lunch, and, therefore the vehicle was not used exclusively for business purposes.
Any incidental journeys on detours by employees, such as to buy lunch have been deemed by the courts as inevitable and provided such digressions are small, the requirement for exclusive business use would be satisfied.
HMRC have previously argued that the car insurance included the clause of SD&P (Social, Domestic & Pleasure) use. This is standard wording for most insurance companies and unless they can explicitly amend the policy wording to show it is only for business use then this would not likely cause any issues.
If you are thinking about buying a car and reclaiming the VAT, it would be prudent to consider the following points;
- Do not keep the car at home yourself nor allow staff to
- Ensure a detailed log is kept of all business journeys which should agree to the mileage on your vehicle
- Ensure employee’s contracts include a clause stipulating no allowance of private use of the vehicle.