We are often asked about the benefit of a business purchasing a car, as part of our discussions with a business owner, they will often assume that the business can claim back the VAT on the purchase. Here we look to dispel some of the myths around this purchase.
First of all, before you purchase a vehicle through the business, talk to either Andrew or Jackie on 01625 524127. If the vehicle will be used privately, it will have repercussions on the individual’s personal tax situation, as it will be a Benefit in Kind. So the savings the business may make in terms of reducing their profit, and so their Corporation Tax liability, may be over-shadowed by the individual’s resulting personal tax liability.
In addition HMRC is very strict on when a business is able to claim back the VAT on a new vehicle. The vehicle must be a pure commercial vehicle – generally this means a van, lorry or tractor. The legislation states that “a van must be a goods vehicle, defined as a vehicle of a construction primarily suited for the conveyance of goods or burden”. HMRC’s guidance says:
- the test is applied at construction
- a vehicle designed and marketed as a multipurpose vehicle is unlikely to be a van
- a vehicle with side windows behind the driver and passenger doors, is unlikely to be a van, particularly if fitted, or capable of being fitted, with additional seating behind the driver’s row irrespective of whether fitted in the vehicle at the time.
There have been recent Court cases where HMRC has challenged that vans with a second row of seats, are actually cars, despite being classified by DVLA and insurance companies as designed and constructed for the carriage of goods. The vehicles recently challenged were two Volkswagen Kombi models and the Vauxhall Vivaro vans. The Kombis were found to be cars and the Vivaro a van! The main factor that the Court identified in making their decisions, was the significant cargo space available in the middle section of the Vivaro, even with the middle seats in place, compared with the VW Kombi.
In some cases a business may be able to claim back the VAT on a car, but you must be able to demonstrate that the car is never used for private use, including not being used for travel between an employee’s home and place of work. You may also be able to claim all the VAT on a new car if it’s mainly used as a taxi, for driving instruction, or for self-drive hire.
If you lease a car, you can usually claim back 50% of the VAT. You may be able to reclaim all the VAT if the car is used only for business and is not available for private use, or is mainly used as a taxi or for driving instruction.
The question of whether to purchase a company vehicle is a tricky one, fraught with tax implications. As stated earlier, if you are considering purchasing a company vehicle, please speak to Andrew or Jackie first on 01625 524127.