Reply to: Claiming VAT on vehicle repairs - proportional to business use

[Martin at NixonWilliams]

Right, so basically the business purpose is..."to provide a benefit to our employees", rather than "to move equipment around" then and therefore passes the wholly and exclusively test?

An interesting twist.

Correct - It is just another form of remuneration. Providing the overall remuneration package is not excessive it would be fine.

[TheCyclingProgrammer]

Not if it is being provided as a benefit - It is an alternative to paying salary, HMRC will never argue with that for CT purposes providing the overall remuneration package is not excessive.

Right, so basically the business purpose is..."to provide a benefit to our employees", rather than "to move equipment around" then and therefore passes the wholly and exclusively test?

An interesting twist.

[Martin at NixonWilliams]

I a bit of an amateur but I am surprised that purchasing an asset would decrease CT liability. Don't you use depreciation of asset value over following years to decrease CT instead? Of course then, your question would apply to depreciation.

Depreciation of a vehicle is not allowable for CT purposes. The depreciation is added back to the accounting profit when calculating the total taxable profit and so does not receive any relief.

As part of the total taxable profit calculation you receive capital allowances, which are a tax deduction given on the value of assets usually at a rate of 8%/18% per year on a reducing balance basis or 100% in the first year if eligible through annual investment allowance (AIA) or some other means.

[Martin at NixonWilliams]

I see what you're saying but I still think NLUK might have a point. I know you're talking about benefit rules and we've also discussed VAT, but what about being allowable for corporation tax in the first place? Wouldn't the purchase of the van have to meet the general test for business expenses (wholly and exclusively) to be allowable for a deduction in taxable profits and if queried you'd need to justify the purchase? Or are there specific rules for vehicles that trump the general rule?

Not if it is being provided as a benefit - It is an alternative to paying salary, HMRC will never argue with that for CT purposes providing the overall remuneration package is not excessive.

[Old Greg]

I see what you're saying but I still think NLUK might have a point. I know you're talking about benefit rules and we've also discussed VAT, but what about being allowable for corporation tax in the first place? Wouldn't the purchase of the van have to meet the general test for business expenses (wholly and exclusively) to be allowable for a deduction in taxable profits and if queried you'd need to justify the purchase? Or are there specific rules for vehicles that trump the general rule?

I a bit of an amateur but I am surprised that purchasing an asset would decrease CT liability. Don't you use depreciation of asset value over following years to decrease CT instead? Of course then, your question would apply to depreciation.

[TheCyclingProgrammer]

Not at all - The conditions to be satisfied are that it is indeed a van, not that the van is needed for the nature of the contract. If a van was purchased on the basis it was for business use only and you were not paying the BIK, then a challenge could arise, but the nature of the challenge would be the same as with any other vehicle.

I see what you're saying but I still think NLUK might have a point. I know you're talking about benefit rules and we've also discussed VAT, but what about being allowable for corporation tax in the first place? Wouldn't the purchase of the van have to meet the general test for business expenses (wholly and exclusively) to be allowable for a deduction in taxable profits and if queried you'd need to justify the purchase? Or are there specific rules for vehicles that trump the general rule?

[Clare@InTouch]

Excellent. So you can get an electric car as a company car and only use it for business on the odd occasion when you drive to the train station, but use your own car almost all of the time for your travel and claim the 45p per mile?

I don't see why not. When I was an employee I used to use the office pool car to drive a few miles to the client site sometimes, otherwise used my own car and claimed mileage because I made a profit on it (I drove a 1.1 Fiesta at the time).

Keep in mind the tax implications to buying a car through the company and then selling it later, when the CT benefit turns into a CT balancing charge.

[Old Greg]

Nope, you can do as you please!

Excellent. So you can get an electric car as a company car and only use it for business on the odd occasion when you drive to the train station, but use your own car almost all of the time for your travel and claim the 45p per mile?

[Clare@InTouch]

Hi Clare, thanks for all your responses, they're really useful. The car in question is 46 year old, but not worth £15k by ANY stretch (£4k max I'd say), so does that mean I just use the original 1968 list price?

Yes - just be aware that if you make any improvements that push the value up over £15k then the Classic Car method kicks in and you'll pay BIK based on the market value.

[vwdan]

It depends on the valuation of the car. Generally if the car is over 15 years old and has a market value above £15k then that's used instead of the list price.

There's a more complicated calculation you can work through here: EIM24400 - Car benefit calculation Steps 1-4, classic car: definition

Hi Clare, thanks for all your responses, they're really useful. The car in question is 46 year old, but not worth £15k by ANY stretch (£4k max I'd say), so does that mean I just use the original 1968 list price?

[Clare@InTouch]

It depends on the valuation of the car. Generally if the car is over 15 years old and has a market value above £15k then that's used instead of the list price.

There's a more complicated calculation you can work through here: EIM24400 - Car benefit calculation Steps 1-4, classic car: definition

[vwdan]

Here is a page explaining how it is worked

How to calculate company car tax | Mumsnet Cars

Here is a calculator to play with

HM Revenue & Customs: CCF-Session Ended

You get loaded depending on CO2 emissions as well. Not sure what a Camper Van puts out. Can't be good though can it?

Think you are thrashing a dead horse here. Even if any of these questions work in your favour a contrived situation to gain the best tax advantage is going to have HMRC pulling their rubber gloves on.

Bearing in mind we haven't seen anyone doing this or any advice to say it is worth it speaks volumes as well.

Bit late now but what does your accountant suggest?

Well, this is the fun bit which I'm querying. Pre 1998 cars are based purely on engine size, rather than any emissions data and, from what I gather, because it's a classic worth less than £15,000 in todays money I just have to use the original list price. With an original list price of ~£800 and a 1500cc engine, that comes out to be £176.00's worth of car benefit, or less than £3.50 a month at 20% tax. And that calculaor seems to indicate that if I pay a contribution equivalent to the list price (i.e. £800), then it will make the benefit charge £0.

But I do realise I could be hitting a limitation of the calculator, hence why I asked. I don't think there's anything dodgy about the above, though, no moreso than taking the company van example previously mentioned.

I don't have an accountant yet as I'm a permie for a few more weeks - I'll be appointing one as soon as I'm done. For the time being, I'm just exploring options and trying to get as good as an understanding of my affairs that I can.

[Clare@InTouch]

Also,is there anything to stop you switching between using a company car and your own vehicle at 0.45p, or are you expected to make use of a company vehicle where possible?

Nope, you can do as you please!

[Contreras]

I've currently got a private car and I'm just wondering if it's possible to claim VAT back on repairs for it, by claiming the proportion that is attributable to business use.

Without reading the esteemed accountant replies in this thread I would probably have guessed yes.

Evidently I've been under the misapprehension (past discussion on another contractor forum*) that claiming VAT proportionally on repairs was possible under the same rules that allow VAT on the fuel component on the 45p/mile allowance to be claimed (works out about about 2p/mile IIRC). I heard the VAT on fuel thing from an accountant as well and it's supported, I think, by the HMRC link below so not complete tosh.

That said, even if it were technically possible to reclaim the VAT proportionally on private vehicles... if this is one of those areas where "opinions vary" then I'd be siding with the cautious views held on this thread. That, and being on VAT FRS would rule it out anyway.

Anyway, since I bothered to look it up and in case it's of any use to someone :

Input tax when fuel is purchased by employees

If employees are reimbursed for road fuel they have bought for business purposes the VAT charged can be treated as input tax. This can only be done if the business can show that the employee has been reimbursed either:

for their actual expenditure; or
by way of a mileage allowance.

The business must also obtain and retain invoices for all fuel purchased by its employees. This means either full VAT invoices or less detailed invoices. Input tax can only be claimed on the cost of fuel for business use in making taxable supplies so any invoices need only cover this amount.

HMRC accepts that the amount of the invoice in many cases will not match the input tax claim in respect of business fuel in any one claim period, particularly where fuel is purchased towards the end of the period.

Clearly a claim cannot be supported by a VAT invoice that is dated after the dates covered by the claim. This means, in practice, that it may be advisable for employers to arrange for their employees who use, or may use, their cars for business purposes to retain all fuel invoices. This will ensure that, at the end of the claim period the value of business fuel is covered by an invoice.

Input tax when employees are paid a mileage allowance

Input tax is calculated by multiplying the fuel element of the mileage allowance by the VAT fraction (VAT rate divided by 100 + VAT rate). The allowance paid to employees must be based on mileage actually done. Business records must be kept to back this up. The business must retain records for each employee claiming a mileage allowance ...

Linky: VIT55400 - Motoring expenses: road fuel and the private use of cars

Repairs and maintenance

If a business uses a vehicle for business purposes it can reclaim the VAT it is charged on repairs and maintenance as input tax as long as the business paid for the work. The business should do this after applying any relevant partial exemption restriction.

It does not matter if:

the vehicle is also used for private motoring; or
the business has chosen not to reclaim VAT on road fuel.

In the case of a sole proprietor or partnership VAT on repairs and maintenance cannot be reclaimed if the vehicle is solely used for private purposes.

Linky: VIT54500 - Motoring expenses: car repairs and other motoring expenses

* which FTOAD I rarely visit any more

[northernladuk]

Just another thought, more out of morbid curiosity than anything. Say I sold/gifted my 1968 VW Beetle to the company, worth about 3 - 4000. Am I right in thinking company tax would be based on the original list price, and additionally, if I paid that price as a contribution would it nullify the tax?

And before anyone thinks I'm being too mental - I used my 1968 VW Camper as my one and only form of transport for 5 years, including business insurance.

Also,is there anything to stop you switching between using a company car and your own vehicle at 0.45p, or are you expected to make use of a company vehicle where possible?

Here is a page explaining how it is worked

How to calculate company car tax | Mumsnet Cars

Here is a calculator to play with

HM Revenue & Customs: CCF-Session Ended

You get loaded depending on CO2 emissions as well. Not sure what a Camper Van puts out. Can't be good though can it?

Think you are thrashing a dead horse here. Even if any of these questions work in your favour a contrived situation to gain the best tax advantage is going to have HMRC pulling their rubber gloves on.

Bearing in mind we haven't seen anyone doing this or any advice to say it is worth it speaks volumes as well.

Bit late now but what does your accountant suggest?