VAT - reclaim possible

non business asset use

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have taken on a new client, they are limited company in construction

they dont have any employees, only subcontractors, and have been paying for fuel, motor repairs etc for the subbies own vans (not our client company vehicles)

previous accountants have reclaimed VAT on these costs, but this feels wrong to us

happy to be corrected but would be pleased for a second opinion

Replies (27)

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By paul.benny
28th Mar 2019 10:14

Recovery of the input tax probably is allowable - see VIT13400.

It took me about 90 seconds to find this answer from gov.uk. If you're providing accounting services and advice to fee-paying clients, perhaps you should find your way around the HMRC manuals online so that you can answer questions like this yourself.

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Replying to paul.benny:
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By Paul Hawes
28th Mar 2019 12:30

Can you attribute the cost of the fuel and vehicle repairs fully to the "employment" though?

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Replying to Paul Hawes:
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By tonycourt
28th Mar 2019 13:13

Why not? It's a cost to the business of using the services of the subcontractors.

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Replying to paul.benny:
Stepurhan
By stepurhan
28th Mar 2019 13:16

I agree. It's nowhere near as clear-cut as you are implying.

I can see it being fairly easy to relate fuel costs to work in the "employment" but the OP also mention repairs to vehicles. That seems a lot less likely to me. Surely if a repair to a subcontractor's van is only for their "employment", then that is an indication they are in substance an employee, not a subcontractor. We all know how HMRC feels about that sort of thing.

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Replying to stepurhan:
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By tonycourt
28th Mar 2019 14:05

Employment status is not part of the OP's question, although, of course, they may want to consider it.

Reimbursing the subcontractors' costs and reclaiming the VAT is simple - whether they are employees rather than subbies is a diferrent issue entirely. Plus, even if they were employees the cost would still be deductible and VAT reclaimable by the payer.

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Replying to tonycourt:
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By Paul Hawes
28th Mar 2019 15:58

I feel like I'm missing something obvious, but these aren't company vehicles. If your employee went on a business trip with their own car you wouldn't reclaim VAT on their petrol or vehicle repairs, you would pay them mileage which would have some VAT element.

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Replying to Paul Hawes:
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By tonycourt
28th Mar 2019 16:29

Yes you are missing something - even where you pay a mileage allowance you're entitled to reclaim some of the VAT incurred by an employee or self-employed worker.

see:
https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit13400 and

https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit55400#Input_ta...

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Replying to tonycourt:
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By Paul Hawes
28th Mar 2019 16:51

I think you are missing the issue I have here. You only claim VAT on fuel and other vehicle costs incurred by an employee when it is a company car, not the employee's own car.

Why then would you be allowed to do it for a subcontractor when it is not the company's vehicle?

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Replying to Paul Hawes:
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By tonycourt
28th Mar 2019 17:18

No, you've got it wrong I'm afraid. The ownership of the vehicle is irrelevant. I can't think why it would be relevant - we're not talking about the supply of the vehicle but the fuel and other related costs. They have nothing to do with the ownership of the vehicle.

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Replying to paul.benny:
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By Nigel Wulcko
01st Apr 2019 12:53

If you're basing it on VIT13400, then it depends on the subbies and whether they are working solely for the client:

"A business might pay for subsistence, road fuel or other motoring costs incurred by self-employed people working for it. If it does the tax incurred is input tax of the business provided:
....
the individual incurs the expenditure only in respect of their “employment” by the business. Where someone like a self employed salesman represents a number of firms at the same time, their subsistence does not relate to any one “employer” and none of those firms can treat the VAT incurred as input tax;"

And if the subbies are only working for the one client, then the whole CIS/"employment" situation should be considered, as others have mentioned.

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Replying to Nigel Wulcko:
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By tonycourt
01st Apr 2019 13:14

Forgetting status issues for the moment - HMRC's guidance needs interpretation in my view. My point is that if for any given day the s/c is working for one client VAT on subsistence, fuel etc paid for by agreement with the contractor relates solely to the that "employment" and the contractor can recover the VAT.

I think what HMRC is saying (badly or disingenuously) is that if, for example, a s/c turns up on site where he acts as a general dogsbody for various contractors at the same time then because the subsistence can't be attributed to ,any one of them the VAT can't be recovered. I tend to agree with that point of view in most situations although I can envisage a circumstance where it might be different.

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chips_at_mattersey
By Les Howard
29th Mar 2019 09:55

I would claim VAT on fuel but not on vehicle repairs.
VIT13300 and VIT13400 are the HMRC guidance, although they are not explicit on the point.

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By djn24
01st Apr 2019 10:44

I'm not sure that they can claim the VAT on the subbies fuel.
The fuel that they use for their own vehicles is a supply to your client. As the subbies are not VAT registered then your client can't claim back the VAT.

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7om
By Tom 7000
01st Apr 2019 11:56

I would say that you could if you gave the subbie a fuel card and the bill was addressed to your company.

If he turns up with a petrol receipt then he is a non vat reg business giving you an invoice for fuel, which is added to his day rate. If he is vat reg then ok, if not no you cant.

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By David Gordon FCCA
01st Apr 2019 11:56

No it is not correct
The Van belongs to the subcontractor.
So, the s/c's should bill should be in two parts
a) costs claimed and
b) labour (CIS rules)
If the s/c is registered for VAT his invoice will show VAT on the whole payment due, and the contractor may claim it back.
If the s/c is not registered for VAT, his bill will not show VAT
But, the van is not the contractor's cost. It is an element of the s/c's business.
This opinion is based on a case known to me. Wherein HMRC added back the reimbursements to the unfortunate s/c's other income, which put him over the limit, which then enabled HMRC to claim, and get, several thousand pounds VAT from the unfortunate sole-trader s/c.

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By Janski
01st Apr 2019 12:06

Very likely the van repairs invoice is made out to the contractor, not the company, so potential issue here. If the contractor invoices the company, VAT will only be recoverable if the contractor is VAT registered.

Also, the contractors are self-employed and thereby work for a number of different clients. So how can the fuel and repair costs be directly attributed to the company's liability for work done solely for them?

I would have thought the only acceptable way would be for a mileage rate to be paid by the company. It doesn't have to be limited to the HMRC 45ppm as this only applies to employees. VAT on the fuel element could then be recovered by the company.

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By tonycourt
01st Apr 2019 13:03

Basic principles - the name on the invoice isn't important, rather, subject to the usual rules the right to recover the input tax belongs to the person to whom the supply is made. In this case that can be either the subcontractor or the contractor depending on the agreement between them.

Look at who is supplying what to whom:

If the agreement is for say, labour plus travel expenses, the supply of the fuel is to the contractor and he can recover the input tax. This could be as part of a mileage allowance.

The repair bills are a more vexed and I don't have time to go into how the contractor might engineer an entitlement to recover the VAT. However, I reiterate that ownership of the van has [***]-all to do with it. consider only the supply and not the asset it relates to.

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Replying to tonycourt:
By djn24
01st Apr 2019 13:12

Quote:

Look at who is supplying what to whom:

If the agreement is for say, labour plus travel expenses, the supply of the fuel is to the contractor and he can recover the input tax. This could be as part of a mileage allowance.

<

You can't claim back VAT on fuel from a subbies who is not VAT registered as far as I am aware. Unless of course it's a refund of fuel paid for the company vehicle.
I've gone through a vat enquiry on exactly this point.

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Replying to djn24:
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By tonycourt
01st Apr 2019 13:25

I think I know what you're referring to, but can you give me the authority for that point of view. Thanks

Also, again, what has ownership of the vehicle got to do with it? Please someone enlighten me on why this keeps cropping up, because by implication it's contrary to the fundamental principle of VAT that input tax is recoverable (subject to the usual conditions) by the person receiving the supply for consideration. I

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Replying to djn24:
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By C Graham
01st Apr 2019 14:06

The rules on this are complex.

There are some exceptions even on what is stated below which can be made for eg, film crews, agents. But in the poster's question it is possible that part might be recoverable (fuel) and part may not (motor repairs). It depends on the detail.

It appears that - 'Where the individual is registered for VAT in their own capacity the tax should normally be treated as incurred by the individual for the purpose of their business. HMRC may exceptionally allow recovery by the “employer” only if we are satisfied that the individual has not recovered tax under their own registration. '

In the stated case question, it would appear that fuel may be recoverable by the contractor only if

'the individual incurs the expenditure only in respect of their “employment” by the business. '

but where there's a generic expense (motor repairs for example) it cannot be recovered.
'Where someone like a self employed salesman represents a number of firms at the same time, their subsistence does not relate to any one “employer” and none of those firms can treat the VAT incurred as input tax;'

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Replying to tonycourt:
Stepurhan
By stepurhan
01st Apr 2019 13:59

Quote:

The repair bills are a more vexed and I don't have time to go into how the contractor might engineer an entitlement to recover the VAT. However, I reiterate that ownership of the van has [***]-all to do with it. consider only the supply and not the asset it relates to.

Then might I suggest you make time.

Because this is the sticking point for most people. Many (if not all) agree that reclaiming VAT for fuel, which can be directly related to a job, should be reclaimable. But your original response agreed that VAT should be reclaimable on all costs.

If a subcontractor has a repair to their own vehicle, then the only way it can be directly attributable to work for a contractor is if they only work for one contractor. Whilst not directly relevant to the question, the employment status issue this creates are VERY relevant to the whole arrangement.

You have been incredibly dismissive, yet you are refusing to address the key problem. Without addressing that, much of what you are saying come across as bluster.

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Replying to stepurhan:
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By tonycourt
01st Apr 2019 14:34

There's no need to be tetchy. A simple, "could you explain?" would have done. If I appeared dismissive (I don't believe I have) it wasn't intentional. I made effort to include links with my post, others didn't. Trouble is I have limited time but will find some today or tomorrow if the OP wants me to, otherwise I won't.

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Replying to tonycourt:
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By C Graham
01st Apr 2019 15:19

Everyone is always tetchy on this forum. Someone will often attack the OP for asking the question in the first place - and then not knowing or not finding the answer - or for misinterpreting it.

Anyway...

What has emerged from all the posts generally points to the following:
1/ the fuel costs (vat) IF they are solely incurred under the contract, may be recoverable by the main contractor-but that also depends on the vat status of the subcontractor.

2/The vehicle repairs (assuming subcontractor's own) definitely would not pass the test of being solely for that 'employment' and mileage would cover some wear and tear on a vehicle anyway.

Presumably the vehicle would be insured so any non-accident repair/maintenance would be the subcontractor's normal own business expense. Unrealistic to pass that on as a direct cost.
NO vat on MOTs.

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Replying to tonycourt:
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By C Graham
01st Apr 2019 15:19

Everyone is always tetchy on this forum. Someone will often attack the OP for asking the question in the first place - and then not knowing or not finding the answer - or for misinterpreting it.

Anyway...

What has emerged from all the posts generally points to the following:
1/ the fuel costs (vat) IF they are solely incurred under the contract, may be recoverable by the main contractor-but that also depends on the vat status of the subcontractor.

2/The vehicle repairs (assuming subcontractor's own) definitely would not pass the test of being solely for that 'employment' and mileage would cover some wear and tear on a vehicle anyway.

Presumably the vehicle would be insured so any non-accident repair/maintenance would be the subcontractor's normal own business expense. Unrealistic to pass that on as a direct cost.
NO vat on MOTs.

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Replying to C Graham:
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By tonycourt
01st Apr 2019 16:12

Just a brief note as I'm up to my eye's in work at the mo.

I'm entirely with you on the "attack the OP" point - Some members (and like to include myself) try to offer constructive responses (whether they are right or wrong), others (I shall not name but I think we know who they are) are naysayers or too quick to respond with "speak to an accountant", not in a sincere way but sneeringly because they've got nothing worthwhile to add.

My rule of thumb is, if you can't be constructive with a post then don't bother posting. Equally, if you feel the original post is unreasonable for whatever reason the best way to discourage similarly fatuous posts is to ignore the question not make snide comments (E&EO).

BTW - you're in the helpful group ;-)

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Replying to tonycourt:
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By C Graham
01st Apr 2019 15:19

Everyone is always tetchy on this forum. Someone will often attack the OP for asking the question in the first place - and then not knowing or not finding the answer - or for misinterpreting it.

Anyway...

What has emerged from all the posts generally points to the following:
1/ the fuel costs (vat) IF they are solely incurred under the contract, may be recoverable by the main contractor-but that also depends on the vat status of the subcontractor.

2/The vehicle repairs (assuming subcontractor's own) definitely would not pass the test of being solely for that 'employment' and mileage would cover some wear and tear on a vehicle anyway.

Presumably the vehicle would be insured so any non-accident repair/maintenance would be the subcontractor's normal own business expense. Unrealistic to pass that on as a direct cost.
NO vat on MOTs.

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Replying to tonycourt:
Stepurhan
By stepurhan
01st Apr 2019 17:03

Quote:

There's no need to be tetchy.

My apologies for being tetchy. I accept that you genuinely did not intend to be dismissive. The problem with only having text to work with is that posts can unintentionally come across that way.

I would appreciate if you are able to clarify your reasoning on this point further. I cannot see how VAT on repairs could be claimed and your links, whilst helpful on the overall principle, don't say it can.

For what it's worth, I agree with you 100% that it is irrelevant what vehicle is being used for fuel VAT to be claimable. I also agree with you in principle that employment status is irrelevant to the question. However, it may become more relevant if the OP were to go down a route of claiming all costs (indicating employment in my view). Better that they be alerted to the possibility than initiate a plan to solve their VAT issue that creates other problems.

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