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Anyone who has tried to recover the VAT on the purchase of a car, particularly an expensive one, will know that few things are as likely to prompt a VAT query. The conditions under which such a claim can be made are strict (see the Value Added Tax (Input Tax) Order 1992 (SI 1992/3222), Article 7), but in simple terms the input tax is only recoverable if the car is to be used solely for business purposes. Even if any private use of the vehicle is paid for by the user, the usage will disallow the claim.
However, as two recent cases show, the fact that HM Revenue and Customs (HMRC) regularly contest such claims does not mean that they are always right to do so.
In the first, a civil engineering company reclaimed VAT on six cars that were kept overnight on the company's premises or on site and private use of which was strictly prohibited. HMRC rejected the VAT claim on the basis that the company did not have sufficient mileage records to prove that the cars had been used for business purposes only and the cars were not insured for business use exclusively.
The company gave evidence that insurance restricting use to business purposes only was not competitively available in the market: all policies offer 'social domestic and pleasure' cover and its inclusion did not have significance: there was a legal restriction on the staff prohibiting them from using the cars for private purposes.
In another case, a self-employed builder who bought a Land Rover to transport materials to and from building sites and who was able to insure it solely for business use also had her attempt to recover the VAT on its purchase challenged by HMRC.
The Land Rover was so dirty as a result of work use that it was unsuitable for private use and the First-tier Tribunal (FTT) took the view that, as a matter of fact, she bought it without the intention of making it 'available for private use'.
Both claims for VAT recovery were allowed on appeal to the FTT.