VAT and Business Use Cars

[SarahDinnage]

Hi All

On 01 August 09 I bought a car - we were slowly setting up the business and in Nov 09 we kicked off.

The company is a recruitment agency, I use the car specifically to go and see clients and that's it. I keep a record of mileage and all the petrol and tax is paid by the business. I am the only one who uses the vehicle as we have another car at home I tend to take that out anywhere like the shops etc.

I registered for VAT in Jan 10 and we have completed 1 return. I was going through some papers this morning and found the reciept with the VAT figure on it and wondered if I can claim for this? The sites I look at say no unless it is used only for business..which it is..but I don't want to look like an idiot when I speak to my accountant so thought I would ask you people.

Any thoughts.

Sarah

[David Griffiths]

You can only reclaim input VAT on a car (other than as a motor trader) when the car is completely unavailable for private use. Car hire companies and some taxi firms are examples when this might apply.

Although you say that you have never used the car for private use, you haven't stated where it is kept. Home to work travel is private, and you cannot recover the VAT

The most important document as far as HMRC is concerned is likely to be your insurance policy. If you have a normal policy that covers you for social, domestic and pleasure in addition to business use then HMRC will throw out the claim because having that cover makes the car available for private use. The only claims that I have seen succeed was somebody who got the insurance company to issue a policy with SDP excluded - that's very rare as the policies tend to include that automatically.

Edit - just notice that you bought the car three months before the business started, so it cannot have been exclusively for business

[SarahDinnage]

Thanks for your advice.

I knew I would have to have a company car to run the business. I bought the car on 01 August - 02 Nov is the date I registered for VAT but in effect I started the business way before the car - depends how you look at it.

Until recently I was working from home so insurance hasn't been a consideration really. I just took out what I would normally take out - it is insured for business but I was never told not to ensure it for SDP - I just took out everything.

Sounds like it makes more sense to sell it and lease something to me.

[AMH ACCOUNTING]

As long as your a company, it doesn't matter if you purchased vehicle over 6yrs ago, providing that you can justify it was only a business expense/purchase. The transaction would be recorded has happening on the first day the company began trading. You are allowed to claim back up to 7yrs of expenses as long as you can prove they were only made for the company. As many companies spend money on expenses well before they are formed or begin trading. This doesn't mean to say you can claim 7 yrs of mobile expenses as will be very hard to justify. Just include the invoice with the rest of your paperwork for Vat for the qtr. It should be quite obvious to your accountants that you have just purchased a new car to go along with your new company as people do. If it is one of these new small energy efficient smart cars then good news for you. Your accountant can claim the full cost of the car as a capital allowance against your profit at end of yr.

[Philip Hoyle]

To be able to reclaim input VAT, you need to prove to HMRC that the car isn't available for private use. There's a host of established court cases about this. For HMRC to accept there is no private use:-

1. The car needs to be kept at or near the business premises, not at any individual's home.
2. Car keys are kept in the business premises.
3. The car insurance is specifically for business travel, not just normal home to business commuting, and even better if social, domestic and h-w commuting is excluded.
4. Mileage logs are kept which reconcile to the mileometer, proving that each and every journey was a business journey.

Remember, it's not whether you actually use it for private journeys that matters, it's whether it's "available" to be used for private journeys - that puts the burden back onto you to take some positive action to demonstrate that you can't use it for private purposes, not just that you don't.

[David Griffiths]

As long as your a company, it doesn't matter if you purchased vehicle over 6yrs ago, providing that you can justify it was only a business expense/purchase. The transaction would be recorded has happening on the first day the company began trading. You are allowed to claim back up to 7yrs of expenses as long as you can prove they were only made for the company. As many companies spend money on expenses well before they are formed or begin trading. This doesn't mean to say you can claim 7 yrs of mobile expenses as will be very hard to justify. Just include the invoice with the rest of your paperwork for Vat for the qtr. It should be quite obvious to your accountants that you have just purchased a new car to go along with your new company as people do. If it is one of these new small energy efficient smart cars then good news for you. Your accountant can claim the full cost of the car as a capital allowance against your profit at end of yr.

With respect, that mixes up the rules for income tax/corporation tax and VAT. For VAT, you can claim on items purchased up to three years before registration, provided that the items are still owned at registration. For services, the period is limited to six months before registration, and subject to restrictions that the service must not have been, for want of a better term, used up.

[Williams lester]

Hi All

On 01 August 09 I bought a car - we were slowly setting up the business and in Nov 09 we kicked off.

The company is a recruitment agency, I use the car specifically to go and see clients and that's it. I keep a record of mileage and all the petrol and tax is paid by the business. I am the only one who uses the vehicle as we have another car at home I tend to take that out anywhere like the shops etc.

I registered for VAT in Jan 10 and we have completed 1 return. I was going through some papers this morning and found the reciept with the VAT figure on it and wondered if I can claim for this? The sites I look at say no unless it is used only for business..which it is..but I don't want to look like an idiot when I speak to my accountant so thought I would ask you people.

Any thoughts.

Sarah

Seeing as you bought the car over 12 months ago, have you not discussed the implications of doing so with your accountant?