Sarah Barron – VAT Senior Manager
A recent case at the VAT tribunal provides useful guidance on the steps which are required to demonstrate that a car is neither intended to be used for private purposes and actually not used privately.
There is a general prohibition on recovering VAT on cars other than those which are used exclusively for business purposes. A pool car, if it can be demonstrated that it is only used for business purposes and only intended to be used as such can qualify for VAT recovery. If there is nothing actually preventing private use, then it cannot be said to be only intended to be available for business use.
In respect of pool cars, HMRC accept VAT recovery if it can be shown that the car is kept at the principal place of business, not allocated to an individual and not kept at an employee’s home. For a company, proving that no private use is intended is easier, by the use of board minutes, and having employment contracts which prohibit private use.
What was HMRC’s ruling?
In the recent tribunal case the sole trader employed his children. Their employment contracts stated that they were not allowed to use the cars for private purposes and the keys to the cars were kept in a lock box, to which only the father had the code. He had another car which he used for any private purposes, the keys for which were more easily accessible than those of the cars in question. The tribunal allowed the VAT recovery.
It should be borne in mind that HMRC will always resist any attempt to recover VAT on cars. In the case of genuine pool cars, making sure that procedures to ensure the cars are not available for private use are fully documented and followed, can support the case for VAT recovery. Crucially it should be stated that there is no intention for there to be any private use. For a limited company this can be formalised by way of a board minute. A sole trader or partnership should also keep contemporaneous records of any meetings where the prohibition on private usage is agreed. Not only must the procedures be agreed and documented, but fully adhered to, to ensure that VAT recovery is supported.
When is a pool car, not a pool car?
Whilst this is not an exhaustive list, the following could indicate that a car is not available for private use:
- It is keep at the business premises when not in use
- It is available to, and actually used by, a number of individuals
- It is not kept at an employee’s home
- It is insured for business use only
- There is a stated policy that private use is prohibited
- Employee contracts prohibit private use
- Mileage records are maintained showing the business mileage and purpose for each trip undertaken. These should be checked back to the mileage recorded on the car regularly.
Menzies can provide guidance on the recoverability of VAT on large expenditure. Please contact a member of the firm’s team of specialist VAT advisers for assistance.