VAT Recovered on Motor Car

The recent case in which the court ruled that a small company should be allowed to claim a deduction for the VAT on the purchase price of a car has gone to appeal and been decided in favour of the taxpayer. In the case in question, the taxpayer was allowed to deduct the input VAT on the car (despite the prohibition from so doing in the Value Added Tax (Input Tax) Order 1992, SI 1992/3222) because they had in place a ban, backed by a board minute, from there being any private use of the car and a policy that any such use would be a breach of the terms of employment of the director who used the car.

 

There is little doubt that HM Revenue and Customs will not look kindly on such claims and those making them are advised to retain proof of the legal prohibition on private use and to have a log to show that the only actual use has been for business purposes. It is likely that HMRC will make strenuous efforts to block what they see as a loophole and a further appeal is likely.