VAT Recovery

29th September 2016

VAT on Motor Car Purchase: When is recovery of blocked VAT unblocked?
A recent tax tribunal case has brought some good news for businesses purchasing cars for business use and provided some clarification to the restrictions and requirements to qualify. Historically it has proven difficult to satisfy HMRC of their intention to not make motor cars available for private use. In addition, the tribunal addressed the question of de-minimis use, finding that minimal personal use, such as use of the car merely to enjoy or collect lunch whilst on a business journey, would not prejudice otherwise wholly business use.

In the case of Zone Contractors Ltd, the First-tier Tribunal (FTT) ruled that the restrictions imposed on the use of its motor cars were sufficient to prove that the company did not intend to make the vehicles available for private use. The claim was made that the input tax deduction was legitimate on the grounds that the cars were intended for use solely for business purposes and that any private use was prohibited. To support this assertion, the company informed HMRC that the terms of employment pursuant to which all staff were employed explicitly included an absolute prohibition of private use of company vehicles. Additionally, the cars were kept either on site or at the company offices overnight and were, therefore, not available for private journeys. The keys were generally kept in the company’s Birmingham office, although, on occasions, the vehicles might be left in London or on site. However, when in Birmingham the keys would be stored on hooks in the office. Each of the directors owned their own private car and these were used to commute to and from the office.

The main factor to the decision was the terms of the employment contract. These were explicit and binding in prohibiting employees from using company vehicles for private purposes. All members of staff, including the directors, signed the contract terms. The FTT, therefore, found that the staff were subject to a legal restriction on the private use of company vehicles. Further, the cars were intended to be stored overnight such that they were not available for the most common form of private use, namely travel to and from work.
The FTT rejected HMRC’s assertion that unless a taxpayer maintains mileage logs to evidence that there is, as a matter of fact, no actual private use, recovery of input tax recovery is not possible. It may be the case that mileage logs are either the best form of evidence or potentially even critical. However, the Court of Appeal made clear that legal restrictions are sufficient, particularly if supported by physical restrictions, such as requiring the cars to be stored overnight at company premises.

In the judgment of the FTT, the appellant had demonstrated that it did not have an intention to make the motor cars available for private use. Accordingly, it was entitled to the input tax it sought to recover.



 
Other items in Blogs
 
Jason Jones
30th July 2018 Tax Rules on Holiday Homes

So, you enjoyed your break in a holiday cottage to the extent that you’re considering investing to make money from a similar property of your own. Jason Jones has this advice because a Furnished Holiday Let is a special type of property business where very different tax rules apply.   These Lets can be seen…

Read More »

Ben Kilby
23rd July 2018 MTD for VAT – FARMPLAN READY!

As of 18 July 2018, HMRC has issued a list of software suppliers supporting Making Tax Digital for VAT. Amongst the list is Farmplan, the only agricultural software supplier. Farmplan has met the criteria HMRC have stipulated for Beta testing. It shows that Farmplan is committed to providing software that is compatible for MTD for…

Read More »

James Cater
29th June 2018 Understanding Tax Relief Restrictions

Although we hear of decline in the value of development land, particularly for larger developments, growing houses continues to be more attractive to many than growing crops. Onerous Section 102 levies may apply but the tax regime remains gentle. It should not however be assumed that tax reliefs will be available automatically. Legislation imposes qualifying…

Read More »

Vanessa Pearson
28th June 2018 Career Change? Think Contracting.

There are many benefits over employment, writes Whiting & Partners Contract Specialist, Vanessa Pearson   Changing careers can be a challenge but leaving the employment wage treadmill to become a contractor can increase your earnings, saving on tax and national insurance as well as providing more flexible working hours. Contractors are essentially self-employed individuals who…

Read More »

Daniel Coleman
28th June 2018 Making Tax Digital – Moving Your Company Forward

You, like many businesses have been successfully running for years, maintaining your books and records and submitting correct VAT returns, in turn ticking all the necessary boxes and satisfying HMRC. However, the introduction of MTD will mean a ‘shake up’ to your current methods and may require you to adopt software for the first time.…

Read More »

Philip Peters
28th June 2018 Trading Allowances Change

Do you remember when eBay first emerged and become a revolutionary trading platform for buying or selling and, yes, turning a profit? As social-media has expanded, so have trading websites to the extent that there’s hardly a town, village or group that does not have a ‘buy’n sell’ page.   HM Revenue & Customs have…

Read More »