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"Unavailable for private use""

12th Jul 2016
VAT Consultant vatadvice.org
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Land Rover
Les Howard

Until recently, the answer to that question was in the negative, unless the purchase was a taxi driver, driving instructor, or re-hired the car to a third party.

The Court of Appeal in Upton had long prevented sole traders from claiming VAT on cars. This decision is here: http://www.bailii.org/ew/cases/EWCA/Civ/2002/520.html 

A recent case helps to re-balance this situation.

In brief, the sole trader insured her new Land Rover Freelander for business-only use. Thus, private use would be illegal. The Tribunal held that the car was unavailable for private use, so input tax was deductible.

The First Tier Tribunal held that there was the possibility that the trader might, at a later date, alter the insurance cover to include private use. However, she had specifically arranged and maintained 'business only' cover. Further, following a previous HMRC inspection, when input tax was disallowed, the taxpayer had sought guidance from HMRC. They said; "for purchase VAT to be recoverable, the vehicle should be used exclusively for business purposes, should be registered and kept at the business address when not being so used, and should be insured solely for business use." The Tribunal was therefore entitled to be satisfied as to the trader's intention, at the time of purchase, to make it unavailable for private use.

(Presumably, if she did change her intention later, and alter the insurance cover, there would be an output tax charge, since there would be private use of a business asset.)

As an aside, the Tribunal also commented on 'the somewhat aggressive and confrontational attitude of' the taxpayer's representative!

The decision is here: http://www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=9205

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