VATGPB4720 - Section 33 bodies: cars: purchases
Background
Since the start of VAT the UK has operated a ‘block’ which restricts recovery of VAT incurred by a business on the purchase of a car to be used in that business. As a result the vast majority of UK taxpayers are unable to recover any VAT incurred on the purchase of a car. In 1995 the UK implemented a number of changes which relaxed the block and allowed recovery on the purchase of specific cars. As a result of these changes cars which are to be used exclusively for a business purpose and are not available for private use, are eligible for input tax deduction.
The legislation covering input tax deduction on the purchase of motor cars is the VAT (Input Tax) Order 1992 (SI 1992/3222) (as amended by SI 1995/1666).
It should also be noted that the effect of section 33(6) is to deny recovery under section 33(1) of any VAT blocked under an Order such as SI 1992/3222. This was confirmed by the Court of Appeal in the case of Greater Manchester Police ([2001] EWCA Civ 213).
Marked cars
The definition of a ‘marked car’ does not extend to those where there are no service markings and the blue lights are either not permanent, or they are permanent but discreet (for example hidden behind a radiator grille). Neither does a car become a marked car by the fitting of a two-tone siren. Whilst it is illegal for anyone other than the emergency services to drive a car whilst using ‘blues and twos’, the car is not inherently unsuitable for private use unless it is overtly an emergency service car.
Private use
HMRC though is prepared to allow VAT to be recovered on cars that are used exclusively by section 33 bodies for ‘official business’ purposes and which are not available for private use. The test of whether a car is available for private use is a test of a taxpayer’s intention when the car is bought. This is a stringent test that must be applied by all taxpayers who purchase a car exclusively for business purposes and who wish to recover their input tax. The availability test must be applied to each car individually.
Cars are, by their nature, highly suitable for private use. As such, in order to pass the availability test, the taxpayer must take positive steps to insulate a motor car from private use. It is not sufficient to say there is no intention to use the car privately. Nor is it sufficient to say that the car is never used privately. Unless there is some physical or legal impediment to its private use the car is still available for private use.
HMRC accept that the physical characteristics of marked emergency service cars, which include:
- identification of the emergency service
- permanently fixed and clearly visible emergency warning lights, and
- normally a warning siren
make these vehicles inherently unsuitable for private use. However, this is subject to review.
Likewise a pool car which is kept at the office overnight and is only ever released by the fleet co-ordinator for authorised official business use could pass the test. But the test is failed if, say, the director, manager or senior officer can approve private use for themselves or others, even if such permission is rarely, or never, granted.
The availability test must be applied to each car individually.
Representations about impediments to private use should be considered on a case-by-case basis, but could include permanent adaptations for the performance of specific official duties such as covert surveillance work.
HMRC interpretation of the availability test was upheld by the Court of Appeal in Upton t/a Fagomatic [2002] STC 640.
Home to office journeys
Home to office journeys are, in the vast majority of cases, considered to be private. However, if it can be demonstrated that there is an absolute necessity, rather than it being merely convenient, for an employee to take a car home, such journeys can be accepted as being in the course of the employer’s official business. For example, an officer taking a car home while on-call for out-of-hours emergencies. Such cars should never be used privately once they are at home.
Additional items
Any additional items that are fitted to a car at the time of delivery fall within the scope of the VAT (Input Tax) Order even if they are separately identified and charged for on the invoice. As a result the VAT is likewise irrecoverable if the body is unable to recover the VAT on the purchase of the car itself.