The issue of VAT input tax recovery on motor vehicles has a long history of producing conflict between VAT-registered traders and HM Revenue and Customs (HMRC).
In general, no input VAT is recoverable on cars, although there are exceptions, in particular where the car is leased. One exception is when the car in question has no private use of any kind.
Recently, a case came to court following an appeal from a man who runs a farming and contracting business. He had been denied his input VAT recovery claim on a 4x4 vehicle, which he had bought for the purposes of his business. The vehicle and its keys were always kept on the business premises, but it had been insured for social as well as business use. That, in the view of the court, showed that there was the intention for the vehicle to be used for private as well as business purposes. The court accordingly rejected the trader's appeal, confirming that the input VAT was not recoverable by him.
It is well known that HMRC inspectors are very sceptical about input VAT recovery claims relating to cars and will seek evidence that the car is used or likely to be used for private as well as business travel. If an input tax claim is to be made for a car, it is essential that there are no grounds given for the belief that it will be used for private motoring, or the claim is likely to be denied. Putting a prohibition on private use in the employment contracts of employees supplied with cars for business use is likely to aid the claim.
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