HMRC recently lost a first tier tribunal case on the recovery of VAT on the purchase of six cars.
Although most VAT registered businesses are able to recover the VAT on the purchase of commercial vehicles the rules for the recovery on a car state two conditions must be met:
• the vehicle must be used exclusively for business purposes and
• it is not made available for private use.
In the case of Zone Contractors Ltd the court accepted that six cars were not available for private use which allowed the business to successfully recover the VAT on the six cars.
The business had a strongly worded contract of employment that prevented employees from using company cars for private travel. This was the crucial factor in this case and allowed the business to recover over £27,000 in input VAT on the purchase of six new cars. The tribunal was satisfied that the cars were wholly used for business purposes and were not available for private use. The tribunal also rejected HMRC’s argument that the company had failed to demonstrate that the cars were not available for private use.
Other factors which were relevant:
Internet link: Tribunal decision