This is a question we get asked by our clients frequently and although the law states clearly that only cars used solely for business purposes by firms such as driving schools, car hire businesses or tax firms can reclaim VAT on cars, there are grey areas to consider.
What are the VAT on cars rules?
Reclaiming VAT on business expenses is based on the intention at the time the expenditure is incurred.
The law is very clear on VAT reclaims on cars and states the following:
- the intention is to use the vehicle wholly for business purposes; and
- it will not be available for private use.
This means that if you pay for fuel personally on a company car to use for personal use too, the reclaim for VAT on cars is blocked.
However, there have been cases where the law has been questioned where business vehicles have been used privately, for example on a business trip stopping off at a shop for personal reasons. With this kind of example, the insignificant private use of a business vehicle should not block a VAT claim, especially if the business car is a pool car.
To make sure you are keeping on the right side of HMRC with regard to business car usage by your employees to ensure you can claim VAT on cars, we would suggest that employment contracts are strongly worded noting enforceable sanctions for breaches for business vehicles being used privately. Alternatively, you can ensure car insurance permits only business use by employees and this will also provide a deterrent for business cars used for personal use.
Many businesses use pool cars to avoid VAT reclaims being blocked and in these instances it is sufficient to ensure the following criteria are met:
- The intention at purchase is that it will be a pool car with no private use
- It is a genuine pool car available for the general use of company employees
- It is kept overnight at the business premises
We strongly recommend that the more evidence that is gathered and retained at the time of company car purchase and the use of business cars, the better your case with HMRC for making claims on VAT on cars.
How can Mirandus help with VAT?
As small business advisory accountants in London, we understand how time consuming and difficult it can be to keep your VAT records updated. Mirandus can support you with your VAT submissions.
We are an accounting company in London who are tax accountants for the self-employed and offer accountant services for small business. You can contact us to offer a tailored solution to your unique business circumstances.
Mirandus Accountants supporting local businesses in the City of London and Greater London area, providing accounting and tax services to SMEs and OMB clients and access and training on QuickBooks.
Please contact us to see how we can help you realise your self-employment ambitions.