Reclaiming VAT on cars, personalised plates and clothing
Case details
Mr B and Mrs M Firth’s (BF and MF) business traded as Church Farm (CF). It reclaimed the VAT paid on two new cars, a personalised number plate and for clothing intended for use by MF in a new trade. HMRC rejected the first two claims and reduced the latter by 50% to account for personal use. Following an unsuccessful HMRC review, CF appealed to the First-tier Tribunal (FTT).
The cars
Before the hearing CF’s accountant told MF that reclaiming VAT was not permitted except for cars used mainly as taxis and similar trades, or where the intention is to use the car exclusively for business. CF relied on the latter reason to justify its claim. The FTT rightly identified the correct test for reclaiming VAT is the intended use at the time of purchase. Whether there is actually non-business use is not relevant, other than as a possible indicator of the original intention.
Intended use
HMRC trotted out its usual argument that insurance policies that cover “social, domestic and pleasure” (SDP) use indicate an intention for non-business use. CF’s counter argument was that the SDP clause was included in the policies by default (this is generally true) and referred HMRC to policies it had for a digger and a paver. Obviously, there was never an intention to use either for SDP purposes and so the SDP clauses proved nothing. To further its argument CF later had the policies for the cars amended to exclude SDP use. Tip. While HMRC’s SDP-clause argument isn’t solid proof of intended use, some judges find it persuasive. To counter this argument, for cars you intend to use solely for business ask your insurer to issue a policy without the SDP clause.
FTT’s decision. The FTT ruled in favour of HMRC. This might seem harsh but we suspect the real reason for FTT’s decision was not the SDP issue but simply that CF’s claim that the cars (an Audi TT and Audi Q8) were intended exclusively for business use (solely for visiting customers etc.) was not believable in the context of its trades (subcontracting glamping, weddings and events). Tip. The ruling includes details of the conditions HMRC expects to see in support of a claim relating to VAT and cars (see The next step ).
The number plate and clothing claims
VAT on the cost a personalised number plate can be reclaimed if the number is clearly identifiable with and promotes awareness of a business. However, the FTT decided that “BS70BEN”, while referencing BF’s name, didn’t meet these requirements and so none of the VAT was reclaimable.
The clothing was sportswear to be worn by MF in running Pilates classes. HMRC accepted there would be business use but that the clothing was not sufficiently specialised, i.e. it was neither protective gear nor a uniform, to permit 100% of the VAT to be reclaimed. It would accept a claim for 50% of the VAT as an arbitrary estimate of business use. As there was no evidence to support a greater claim the FTT agreed with HMRC.
For the conditions for reclaiming VAT, visit https://www.tips-and-advice.co.uk , Download Zone, year 22, issue 19.