VAT Hire Purchase

VAT Hire Purchase

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Hi,

Is it allowable to claim VAT for companys car and vans used only for business purposes when bought on Hire Purchase?

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VAT
By Jason Croke
31st Jan 2023 14:56

Hire Purchase usually means the vehicles are purchased/kept as an asset, as opposed to being leased and returned at the end of a hire period.

There is an input tax block on cars - the block refers to the car "not being available for private use" and that is often a very high hurdle to jump over. If an employee or Director takes the car home at night then it is used for private purposes...and even if they don't take it home, if it is possible for them to take it home, then that makes the vehicle "available" for private use.

The input tax block on cars exists whether the car is purchased with cash or on finance/HP.

Tribunals and HMRC look at things like does the insurance include social/domestic, are the keys kept locked away and must be signed out each time the vehicle is used, mileage logs, etc. merely saying the car will only be used for business is not enough, you have to prove it can't be used for personal use.

Vans are not cars and so the input tax on commercial vehicles such as vans, pick-ups and lorries is recoverable as per normal VAT rules.

With HP, the seller will charge VAT on the entire cost on the first invoice, usually by way of calling it a deposit. For example, if buying a van for £24k, the deposit will be £4k and that deposit is essentially all of the VAT charged up front and for you as purchaser, can be reclaimed, thereafter the monthly payments would be without VAT/just finance payments.

Thanks (1)
Replying to Jason Croke:
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By JB101
01st Feb 2023 11:38

Driving instructor or taxi business? There are some "odd" cases where usual car rules don't apply.

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Replying to JB101:
RLI
By lionofludesch
01st Feb 2023 11:42

That would be a helluva piece of carelessness to omit a fact like that from the OP.

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Replying to lionofludesch:
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By JB101
01st Feb 2023 12:52

It's a very short question!

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Replying to lionofludesch:
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By Leywood
02nd Feb 2023 12:28

But we see that on here all the time.

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Replying to Jason Croke:
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By PChapman
02nd Feb 2023 11:28

There are also "Vans" like the VW Kombi and Vauxhall Crewcab which may or may not be Vans for VAT! (Thanks Coca Cola!)

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RLI
By lionofludesch
31st Jan 2023 15:46

Vans yes, cars no.

From an accounting point of view, you need to regard a purchase on HP as

1. Borrow money from HP lender

2. Buy asset

3. Repay loan + interest.

In reality, the money in step 1 goes direct to the company selling the asset, rather than the client, but that's HP, in essence.

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By David Ex
31st Jan 2023 16:58

Katemorgan wrote:

…. companys car … used only for business purposes ….

Not sure exactly what you mean but you’ll struggle to get HMRC to agree no private use of cars.

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Replying to David Ex:
RLI
By lionofludesch
31st Jan 2023 17:01

Yes. Good luck with that.

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