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VAT on vans

VAT on vans

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A question was raised earlier this month re VAT on vans and one of the respondents stated that they had never come across a case where the VATman wanted to restrict VAT input cliam on a company van.

A client has sent me a copy of a letter after a VAT visit and the VATman has said 'As discussed, if you purchase a commercial vehicle of which there is an element of private use, you must apportion the VAT incurred to disallow the proportion relating to private use.' The VATman then intends to disallow 20% on two van purchases.

Any comments would be welcome!
Anon

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By theaardvark
26th Oct 2007 10:31

Try a sample exercise.......
You are quite a liberty to challenge the Officer of Revenue & Customs' (ORC's") 20% assumption but you will need some evidence to back up your challenge. I would recommend a short sample exercise. As the drivers to keep a record of business and private mileage for a sample period. A month, say. And calculate the actual private use. You must ensure that the period used is representative of the normal levels of usage.

Regards

Paul Taylor
Senior VAT Consultant
Dains

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By neileg
26th Oct 2007 11:51

Company or SE
The private use of assets by a sole trader or partner leads to a restriction. If the business is incorporated then this doesn't apply.

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By theaardvark
26th Oct 2007 16:55

Not so....
Any private use by a director or employee, unless charged for by the company with VAT accounted for, will also lead to a restriction of input VAT.

Regards

Paul Taylor
Senior VAT Consultant
Dains

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By Anonymous
26th Oct 2007 21:12

Lennartz mechanism
I understand that the UK must now approach the private use of assets using the principles of the Lennartz case for VAT purposes.

The introduction of this mechanism for dealing with private use of assets has been delayed - 1st September 2007 has passed and now 1st November 2007 is stated on HMRC website, but so far as I can see full explanation of the new mechanism is not yet published. There is mention of transitional provisions which could affect the van in question.

I would feel inclined to reply to HMRC saying something like "... the 20% disallowance proposed is inconsistent with community law and as the Lennartz mechanism has not been implemented no adjustment for private use can lawfully be made."

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By neileg
29th Oct 2007 09:35

Paul
Excuse my ignorance but can you explain your assertion on private use in a company situation. Your advice conflicts with my own understanding.

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By theaardvark
29th Oct 2007 14:25

Lennartz - Optional
The use of the Lennartz mechanism (reclaim input VAT in full on purchase and account for output VAT charge over time for private use) is optional. For a comparatively low value item such as a van, the operation of the Lennartz mechanism is probably overly time consuming for the minimal cashflow advantage it generates. It is usually simpler just to disallow a proportion of the input VAT.

Neil - it's basic principles. Input VAT can only be deducted on costs that are used for a taxable business purpose. Private use by an employee (including a director) is not a business purpose, unless the business makes a charge for it and accounts for VAT on that charge as appropriate.

Regards

Paul Taylor
Senior VAT Consultant
Dains

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By neileg
30th Oct 2007 12:47

Sorry, Paul
I'm still struggling with the PU restriction. If a van is partly used by any employee, including a director, then that is a benefit and is part of the employees remuneration. That is a clear business purpose and I don't see the logic that leads to this being disallowable.

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By stephenkendrew
30th Oct 2007 14:41

Business Brief 55/07
Have a look at this recently issued business brief. This relates to an amendment to the treatment of VAT on computers following the changes to the HCI.

It says that: -

"Businesses will only be able to claim full VAT recovery without any requirement to account for VAT on any private use ..... where the provision of a computer is necessary for the employee to carry out the duties of his employment."

I would have thought that, using the same argument for a van, there should be no private adjustment.

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By theaardvark
30th Oct 2007 15:42

Supply....
Neil,

If you wish to deal with it that way, then you should also account for VAT on the notional BIK as there is a supply from the business to the employee for a consideration (the benefit).

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By neileg
30th Oct 2007 16:10

Thanks, Paul
I can see the logic, there. Thanks for indulging me!

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By theaardvark
30th Oct 2007 16:43

No problem Neil
The "logic" behind the direct and indirect taxes are so diverse from each other as to seem almost perverse to someone who advises solely on one of them. I myself am completely unable to understand corporation or personal tax unless someone describes in in words of one syllable.

Regards,

Paul

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By robindr
01st Nov 2007 11:00

Does commuting count as private use for VAT purposes?
If the van is used only for business use and commuting and therefore does not give rise to BIK charge, is the commuting element "private" or "business" as far as VAT apportionment is concerned?

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