Can i reclaim vat if my business purchases a car?
This question comes up regularly from clients buying a new car, or a second-hand VAT qualifying one: Can the VAT be reclaimed?
In the majority of cases the answer is no, since there is a general block on recovering input VAT on the purchase of a car.However, there is an exception to this block if the car meets two conditions:
- It is used exclusively for business purposes; and
- It is not made available for private use.
These rules are very similar to those in relation to pool cars for income tax purposes, and they basically mean that VAT can only be reclaimed on the purchase of a genuine pool car with absolutely no private use.
Usually this will mean that the car is kept at the business premises overnight.
HMRC will usually accept a small amount of incidental private use, for example stopping off for a sandwich on the way back from a business journey, but beyond that they are highly likely to challenge any recovery of VAT on the car’s purchase.
Where members of staff use the vehicle then it would be advised to make the fact that no private use of the vehicle is permitted a condition of their employment, such that any breach could lead to disciplinary action.
As with income tax, and HMRC inspector would usually ask to see insurance documents and mileage logs to ensure that it is a genuine pool car.
Interestingly, the rules for recovering input tax on the monthly lease payments where a car is leased rather than bought outright differ as they allow 50% recovery of the input VAT on the lease payments where there is an element of private use of the vehicle. For this reason leasing company cars for members of staff can often work out cheaper than buying the car outright.
Key Facts
- There is a general block on the recovery of input VAT when buying a car
- VAT recovery is only possible for genuine pool cars
- This means cars only used for business purposes with NO private use
- 50% input VAT recovery is possible on car leases
For further advice on this matter, please contact me.
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