VAT rules for business owned cars

Most businesses we deal with consider a motor car to be an essential asset of their business.  Without a car they just would not be able to carry on their trade.  For VAT purposes a car is not treated like any other asset.  Special provisions apply to cars which apply to no other items.

VAT law has always treated cars in rather a special way primarily due to a high degree of private use.  Much to everyone’s dismay for most businesses, apart from the likes of a driving school, taxi firm or self drive hire business, VAT is not recoverable as input tax on the purchase of the car.  There are, however, provisions which mean that VAT can be claimed back on the purchase of a car if there is NO intention whatsoever that it should be made available for any form of private use.  In practice this is very difficult to fulfil.  It is not a case of not doing any private mileage in a business car, it is rather whether the car is available for private use.  If there is any chance of claiming input VAT back on a car which is to be used for business use only then steps must be taken to prevent private use, such as the vehicle insurance being for business use only, and/or prohibition on private use being included in contracts of employment.

So if you are unable to claim the input VAT back on the purchase of a car, what about the running costs?  The goods news here is that input tax is recoverable on all the running costs of a car such at repairs, service, new tyres etc without the need to make any restriction for private use.

Running costs do not however include road fuel whether petrol or diesel.  Input tax can be recovered in full on all purchases of road fuel for cars used by a business, even if there is some private mileage, as long as the VAT registered makes a standard adjustment on their VAT Return.  This is called the fuel scale charge and is based on the carbon dioxide emissions of the vehicle in question.   The higher the emissions the higher the scale charge:-

Quarterly Fuel Scale Charges and VAT thereon

The scale charge applies regardless of how little or how much private use the car has.

A business can opt not to adopt the fuel scale charge and in turn not recover input VAT.  However, care needs to be taken before going down this route as the decision would apply to ALL road fuel bought by the business for any vehicle.  It is not possible to elect to claim on specific vehicles.  It’s all or nothing!  So the likes of a haulage contractor who drives a Ford Mustang with carbon dioxide emissions of 299 g/km would be wise to pay the fuel scale charge of £82 a quarter, as if he doesn’t adopt the fuel scale charge he will be unable to claim the input VAT on the road fuel for his fleet of wagons – definitely not a good move!

There is a final option other than adopting the fuel scale charge but I rarely see people using this in practice.  This is to keep detailed mileage logs recording each business and private journey and only claiming input tax back on the business proportion of the road fuel expenditure.

Those are the VAT rules for business owned cars now but expect all this to change as more electric cars take to the roads in the years to come, along with all the changes re BREXIT!!

Cyndy Potter

 

 

Cyndy Potter,

Tourism & Leisure Manager

cyndy@saint.co.uk