B8: Purchase: particular assets

- Disallowance of input VAT recovery on cars except for certain types of business

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General rule

- VAT charged on the supply (including letting) or importation to/by a taxable person of a motor car is excluded from input VAT credit (Art 7(1)).

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Meaning of car

- Any motor vehicle of a kind normally used on public roads, with 3 or more wheels and constructed/adapted mainly for carriage of passengers or has to rear of driver's seat roofed accommodation with side windows or adapted for side windows (Art 2).

- Exclusions for single person vehicles, vehicles suitable for carrying 12 or more people, caravans, ambulances, 3 tonne + vehicles, special purpose vehicles, and vehicles with a payload of 1 tonne +. 

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Exception: Qualifying car intended exclusively for business use or primarily for hire/taxi/driving instruction business

- Input recovery not disallowed where the car is a qualifying motor car, supplied to a taxable person and relevant condition satisfied (Art 7(2)).

- Qualifying car generally means a car that has never been supplied or imported in circumstances where input VAT recovery was denied under the general rule. 

- Relevant condition is that the supply is to a taxable person who intends to use the car (Art 7(2E)):

(a) exclusively for the purposes of a business carried on by him; or

(b) primarily for the purpose of hiring with driver (including as a taxi), self-drive hire or use for driving instruction.

- Intention to use exclusively for purposes of business not met if intention to hire out for less than market value or to make it available (other then by hire) for private use (whether or not for consideration) (Art 7(2G)).

- Self-drive hire

- Means hire where the period of hire to a particular hirer will normally be less than 30 consecutive days and less than 90 days in a 12 month period (Art 7(3)).

- Private use

- Note that being available for private use does not block recovery if T is relying on (b) (primarily for the purpose of a hire business etc.) (VIT52400).

- Issue is not whether T intends to use it for private use, but whether T intends that it will be available for private use. As long as T intends a state of affairs in which it is so available, T intends it to be available (Upton, §46).

- Contractual restriction may be sufficient (Upton, §41).

- "very heavy use made of the cars and the requirement that mileage be accounted for by completion of a log, too, render their further use for private purposes largely impractical" (Masterguard Security Services Limited v. CEC 

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Other exceptions (stock in trade etc.)

- Cars forming part of the stock in trade of a motor manufacturer or motor dealer (Art 7(2)(aa) - defined in Article 2), which can allow some private use (Article 2).

- New cars supplied to a taxable person whose only taxable supplies are concerned with letting cars to a person whose business is predominantly letting cars to disabled persons within Schedule 8, Group 12, item 14.

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Legislation: VAT (Input Tax) Order 1992, Article 7; 

Cases: 

Upton v. CEC [2002] EWCA Civ 520;

Masterguard Security Services Limited v. CEC [2004] UK V18631; 

HMRC manuals: VIT52400; 

Commentary: De Voil V3.443; 

See also: VAT Notice 700/64; 

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