The VAT definition of a car is that it is a vehicle to be used on public roads that has three or more wheels and is either constructed or adapted solely or mainly for the carriage of passengers, or has to the rear of the driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows.
This definition may lead us to the conclusion straight away that a double cab will be a car for VAT purposes. However, there are important clauses in the legislation further defining what is or is not a car.
A vehicle constructed to carry a payload of one tonne or more is not a car for VAT purposes. This is a very important factor for double cab vehicles as many of them will have a payload of over a tonne and therefore will qualify as commercial vehicles. You should check the specifications of your particular model to check if the payload is over one tonne. If it is, his vehicle is a commercial vehicle rather than a car. Similarly, if the unladen kerbside weight of the vehicle is three tonnes or more this excludes it from the definition of a car.
Recovery of input tax on the purchase is blocked unless:
- it is stock in trade for a manufacturer or dealer, or
- it is intended to be used primarily as a taxi, driving instruction car, or self-drive hire car, or
- it will be used exclusively for business purposes and would not be made available for the private use of anyone.
The last of these conditions place a very high burden of proof on the taxpayer as it requires measures to be in place preventing the taxpayer or their employees from using the car for private use – even, for example, in case of emergency – and thus is difficult to meet satisfactorily.
The HMRC website information about the recovery of VAT on a commercial vehicle is slightly misleading. The rules have not been changed and it is still the case that input tax on a commercial vehicle purchased by the business can be recovered, even if there is an element of private use. If there is to be private use of the vehicle as well as business use, then the taxpayer has a choice to either:
- apportion the input tax recovered at the outset; so what is recovered equates to the anticipated business use proportion, or
- recover the input tax in full at the time of purchase and then account for output tax on private use each quarter using the Lennartz principle.
If using apportionment at the outset, the taxpayer needs to be able to demonstrate how he arrived at the proportion used, which must be fair and reasonable.
It is important to decide when the economic life of any goods starts. The economic life starts on the day of the first use of the goods and runs continuously for five years unless there are periods of no use.
How to calculate the value of the deemed supply
The value of the deemed supply for the private use of a business asset should be worked out using the formula below. This is subject to A being amended due to periods of no use (see below). The formula will give the value of the supply for a VAT return period; normally one, three or twelve months.
A x (C x U%)
A is the number of months in the VAT return period during which the private use happens and which fall within the economic life of the goods.
B is the number of months of the economic life of the goods. This is normally sixty months. However, the period may be shorter if, for example, the goods are due to be disposed of in say three years’ time.
C is the full VAT bearing cost of the goods (excluding VAT itself).
U% is the extent of private use in the VAT return period expressed as a percentage of the total use made of the goods during the VAT return period.
There is no prescribed method for working out the private use percentage of the goods. However, the method used must arrive at a fair and reasonable figure. It must also demonstrably reflect the actual use of the goods, which may change and must be monitored from period to period.
U% is based on actual use of the goods. Where, for example, goods are used ten days for private purposes, and ten days for business purposes in a ninety-day VAT return period, U% will be 50%.
Lennartz principles will only apply where the goods are used in part for making taxable supplies and in part for private purposes or, exceptionally, for other uses which are wholly outside the purposes of the taxpayer’s enterprise or undertaking.
Following Hansgeorg Lennartz v Finanzamt München III  EUECJ C-97/90 (11 July 1991) (‘Lennartz’), the UK tax authorities had accepted that VAT to be used for both business and non-business activities could be recovered in full in certain circumstances, provided that the VAT was then accounted for on the subsequent non-business use of the asset in question. However, further to the decision in Vereniging Noordelijke Land- en Tuinbouw Organisatie v Staatssecretaris van Financiën EUECJ C-515/07 (‘VNLTO’) this is no longer the case.