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Can I reclaim the VAT on a new car used for business?

Andy Hancock

This a question we get asked a lot and unfortunately, other than for driving schools, taxi firms, car hire business and the like, usually the answer is ‘no’. 

Company car drivers, even if they pay for their private fuel, use cars privately too which blocks the right to a reclaim. 

But what if there is a sole business purpose to the use of the vehicle - such as a genuine pool car? Why should VAT reclaim be denied?

The law states that VAT can be reclaimed when:
o    the intention is to use the vehicle wholly for business purposes; and
o    it will not be available for private use.

The problem to date has been having sufficient proof to satisfy HMRC on the second of these points. How can a vehicle not be available for private use? What if the user is on a business trip but stops at a shop on the way back to the business premises? Is that insignificant?

Whilst the law hasn’t changed, some recent cases have confirmed that the sort of insignificant use described above should not block the VAT reclaim for the provider of a genuine pool car any more than it should for a taxi owner.

What is required is something sufficient to deter private use such as either:

o    A strongly worded employment contract, with enforceable sanctions for breaches, stating that such a vehicle may not be used privately 
o    Insurance that permits only business use

Whilst we doubt the first of those could really be justified for owner-managers, it should be sufficient for genuine pool cars which meet the following criteria:

o    The intention at purchase is that it will be a pool car with no private use
o    It is a genuine pool car available for the general use of company employees 
o    It is kept overnight at the business premises

Because VAT reclaims are all about intention at the time the expenditure is incurred, the more evidence that is gathered and retained at the time the better. 

Contact us for more information if you think you might be able to claim.