VAT cannot be claimed by businesses who buy cars which are to be ‘made available’ for private use, which includes travelling between home and work. This generally means that the VAT can only be claimed when the car is to be used as a taxi or for driving instruction, for example.
However, where VAT is incurred on the purchase of commercial vehicles (such as vans, lorries and tractors) and they are to be used for business purposes, then the full amount of VAT is recoverable (subject to any partial exemption restriction). HMRC confirm that small amounts of incidental private use can be disregarded. Note that if the private use is anything more than incidental, a self-supply charge or restriction to the amount of VAT to be claimed should be considered.
The confusion tends to be in relation to combination vans and car-derived vans and what makes these a commercial vehicle, rather than a regular passenger car. For VAT purposes, a car is defined as a motor vehicle with three or more wheels designed to carry passengers that has rear accommodation with side windows. This does not include:
- Vehicles capable of accommodating less than two people, or more than eleven people seated
- Vehicles with an unladen weight of more than three tonnes
- Vehicles designed to carry a payload of one tonne or more; and
- Special purpose vehicles not designed for passenger transport (such as ice cream vans or recovery vehicles)
The VAT treatment of input tax incurred on a specific model of vehicle may differ to a seemingly identical model of vehicle. It is important to recognise whether the vehicle in question is either a commercial vehicle, a car derived van, a combination van or a regular passenger car before purchase. Getting this apparently ‘simple question’ right can be the difference between being able to claim VAT or not.