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VAT: Is Your Vehicle a Car or a Van?

Posted: January 24, 2018

For some time now there has been a restriction, or ‘block’, on the recovery of input tax incurred on cars. There are a few exceptions to this that have crept in over the years, driving schools, taxis, and hire cars may have the VAT recovered as their use can be clearly shown as being wholly for the business – the same can apply to ‘pool’ or demonstrator cars.

 

The general position, therefore, is that VAT cannot be recovered on a car unless any of these ‘business use’ exceptions apply.
In recent years the size of the ‘average’ motor car has increased – you only need to compare the sizes of the current Mini or Fiat 500 with their vintage counterparts to see this. In addition, there has been a corresponding rise in popularity of ‘twin cab’ pick-ups and ‘combi’ vans on UK roads. From a VAT perspective some of these vehicles may qualify as ‘commercial’, and this would mean that VAT on their purchase would be recoverable as input tax.

Where a vehicle has a payload in excess of 1 tonne it is not treated as a ‘car’ for VAT purposes; and may allow for VAT recovery if it is purchased by a VAT-registered business for the use of that business. This is particularly relevant for double cab vehicles. Any adaptation of the vehicle – such as adding a fibreglass cover over the pick-up area – would reduce the payload capacity and may bring it below the 1 tonne limit and reclassify the vehicle as a car (with no corresponding VAT recovery).

The guidance on this has been in place for almost 20 years and both businesses and vehicle suppliers had (almost) come to terms with the treatment, but then a case cropped up at the First Tier Tribunal that could muddy the waters somewhat.
In Noel Payne, Christopher Garbett and Coca-Cola European Partners Great Britain Ltd v HMRC [2017] TC 06082 (a case involving employee benefits) the tribunal had to consider the difference between two vehicles – a VW Kombi and a Vauxhall Vivaro – and whether these were cars or vans for tax purposes.

 

The considerations had to focus on the number of seats, the number of windows and the available load space in each vehicle. Surprisingly the decision of the tribunal (which sets no precedent) was that the VW was a car, and the Vauxhall was a van. This was based upon the interpretation of each vehicle’s ‘primary purpose’ – the Vauxhall’s being for the transport of goods, and the VW having no apparent predominant use, being for transporting passengers and/or goods.

 

Whilst this was not a VAT case, and sets no precedent, it may have some bearing on HMRC’s interpretation and guidance on whether vehicles fall into one definition or another. This may, in turn, impact on whether VAT is recoverable on the purchase of these vehicles.

HMRC have worked with the Society of Motor Manufacturers and Traders (‘SMMT’) in identifying the categorisation of some ‘car-derived vans’, and published it here:

www.gov.uk/government/publications/hm-revenue-and-customs-car-derived-vans-and-combi-vans

Any business looking to purchase a vehicle that may appear to be ambiguous in terms of whether it is a car, or a commercial vehicle may wish to seek clarification, either from reference to HMRC guidance or from their BH contact. Advice from a dealer may be welcome but should be backed up by verifiable documents or comment on the vehicle in question.