As a director of small business I use my private vehicle for business use and claim mileage expenses as normal. However, my car now requires an expensive out of he ordinary repair, 'new gearbox' for example. I would like business to pickup the VAT for the repair and I don't want to incur any Benefit in kind so am I correct in thinking that I can under HMRC 700/64 do the following...
Have the company pay for the repairs in full
Company claim the VAT Back on the repair
As an employee/Director repay the cost of the repair less VAT back to the company, so no benefit in kind.
My thinking (and my guess) is that 700/64 allows VAT reclaim on repairs because the only part of mileage expenses allowed for VAT reclaim is what HMRC consider to be the fuel part of the 45p per mile?
This has been asked before in slightly different ways but ultimately never with a full position and to avoid benefit in kind.
Thank you in advance for your consideration and responses.
Replies (12)
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Short answer No
the mileage rate you claim from the company (45p) includes an element for repairs, insurance etc so no further costs are allowable as they have not been incurred wholly for the business. If the company owns the car and you receive a BIK on the car then of course the business can reclaim the VAT and pay for the repairs etc. You are able to reclaim VAT on a proportion of the mileage charge. Additionally re the P11d, any items which does need to be shown on a P11d is shown inclusive of VAT so if you repaid the next amount there would still be BIK on the VAT value.
Stock answers
It may seem like a stock answer, but there is a good reason for that. That is the correct treatment. It is a standard answer because it is the only answer. Thanks for your response Fiona. This was also basically the stock answer from my Accountant.
Both your own accountant and the posters here have given you this answer from a depth of knowledge about these matters. Reading a bit of HMRC guidance (which does not always reflect the correct legal position by the way) does not make you an expert. Stretching interpretations to attempt to squeeze benefit out of them is what has led to all the big failed tax-scheme stories in the press.
In order to reclaim the input VAT...
... the supply must be made to the company. Where repairs are carried out to a vehicle owned by an employee, the supply isn't to the company, it's to the employee, irrespective of whether the employer arranges and pays for the supply.
Notice 700/64 is written in the wider context of all businesses, where it is the case that a soletrader (the VAT taxable person) who uses his vehicle partly for his business and partly for private purposes can, indeed, recover all the VAT.
Incidentally, the BIK amount if paid for by the company is the VAT-inclusive amount in any event, irrespective of whether the company can recover the VAT. Arguably though it's also a pecuniary liability though, meaning that it's liable to Class 1 NIC, rather than Class 1A, to the extent that the VAT inclusive amount isn't made good.
The VAT "rules" are not at all connected to the direct tax 45p/25p mileage rates. Where an employee claims mileage VAT can only be recovered on the fuel element, because VAT isn't recoverable by an employer on any of the other expenses relating to the employee's vehicle, because there's no supply to the employer. Indeed, the recovery of VAT on petrol is a bit of a fudge over which the EC has previously taken action against the UK.
Implied
Not explicitly, but the very phrase "stock answer" has negative connotations. It is commonly defined as something rolled out without any thought being given to the question. There is also the fact that, having been told no, you went on to challenge that answer, citing HMRC guidance. You say you're not claiming to be an expert, yet you appear to be saying "but this HMRC guidance says you can" as if you've cleverly spotted something neither your accountant or the opening poster knew. At no point did I attempt to state that the stock answer was wrong but I wanted to understand why this was stock answer in light of my very limited experience.
Just out of curiosity, did you actually put this question to your accountant before coming here? If you're unhappy with an answer your accountant has given you, but don't ask them why, that's a bad sign for the relationship. Either you don't trust their advice to be reliable or you think they will charge you for asking for a simple clarification. No online forum is a substitute for a good working relationship with an accountant you feel you can rely on.
Friendly
Come on folks, be friendly! I'm a self-confessed VAT geek and I don't think it's a silly question because the whole treatment of mileage expenses (ignoring the private use) is a massive fudge by the UK that sooner or later someone in Brussels will latch on to.
Please don't let this put you off asking questions in future. All of the great VAT ideas have come about by someone saying, "hang on, what if..."
Going against the tide
I believe that the company can recover the input tax provided that the vehicle does have some business use (which it clearly does if mileage payments are claimed) and if the invoice for the work is raised to the company which then pays it.
The cost to the company can be treated as part of the approved mileage payments for that year, or can be reimbursed by the director. In that case no benefit in kind arises.
I can't provide a link to HMRC guidance, as I don't have time to delve in and find it, but we've done this for a number of years and the point has not caused any issues with HMRC offices on VAT inspections. Indeed one client who prepares his own VAT returns was speficially asked by the VAT inspector why he hadn't arranged to claim input tax in this way.
No such word as "can't"
My Granny taught me this and it has helped me challenge HMRC rulings in my adulthood.
I agree with Cloudcounter. I asked a senior VAT inspector if I could claim VAT on car repairs and he agreed that I could using carljcharles logic that if there was a legitimate vat claim for the fuel element of the mileage charge then the same logic applied to VAT on repair bills.
Since then (some years ago), I have had no problems with VAT inspectors when I have claimed it.
The technical answer from the experts maybe "no", but claim it and argue your case if it is queried.
Having done some further research...
... I'm forced to agree with Basil and Cloudcounter, although I don't accept the photocopier example Basil; I don't know of any photocopier lessor that permits the lessee to arrange for it to be repaired.
With respect to the OP's particular case, a new gearbox is being fitted to the OP's private car. I wonder if Basil would mind commenting on who owns the new gearbox that was part and parcel of the supply.
The basic rule regarding needing to be the recipient of the supply is set out at VIT13300, with examples at VIT61330. See in particular the D&K Builders example.
However, HMRC then elaborate on the point in relation to employees (including directors) in VIT13400, that they accept that input VAT incurred by an employee on "other motoring expenses" can be recovered by the business.
Given that that runs counter to the EC's case in EC v UK, I don't accept it as the right answer technically, particularly when you consider that VAT registered business can recover VAT on insured accicent repairs (arranged and otherwise paid for by the insurer), on the basis that the supply is to the insured (see VIT13500).
Taken together with VIT54500, I think HMRC would be hard-pressed to dispute a claim such as that proposed by the OP.
As I originally said though, the benefit in kind or the pecuniary liability is the VAT-inclusive amounts, so unless the VAT-inclusive amount is made good there will be an earnings charge.
I disagree with Cloudcounter that it can just be subsumed within the mileage allowance claim. A possible way around these problems is to charge the repair initially to motor expenses, then make a VAT-inclusive "making good" charge to the DCA and then credit mileage claims to the DCA.