The term ‘qualifying car’ is widely used and misunderstood. Car dealers may well tell potential buyers that it means you are able to reclaim the VAT. However, is that always the case?
Generally, the input tax on the purchase of a motor car is blocked, unless the car is to be used for one of the following purposes:
- As stock in trade of a motor manufacturer or dealer;
- Primarily for the purposes of taxi hire, self-drive hire or driving instruction, or
- Exclusively for business purpose and not available for any private use.
Those trading in taxi hire, self-drive hire and driving instruction only need to demonstrate the car will be used mainly for business purposes, whereas, apart from dealers and manufacturers, other traders need to demonstrate exclusive business use.
HMRC are strict on the interpretation of exclusive business use and tend to take the view of ‘guilty until proven innocent.’ This means that unless you can prove there is no private use whatsoever, HMRC will take the view there is private use.
There are several steps that can be taken to prove the car is not available for private use, such as:
- ‘Business use only’ for insurance purposes
- Detailed mileage logs linking each journey to a business purpose
- Always parking at the business premises overnight
When you have recovered input tax on the purchase of a car, it will also be subject to VAT when sold. However, when the VAT was blocked on the purchase, there will also be no VAT on the sale.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.