Be careful what you put on your VAT return
A married couple, John and Beth Maddison, traded as River Farm, “subcontracting glam/camping, weddings and events.”
In October River Farm contacted the HMRC to tell them their next VAT return would include VAT suffered on the purchase of several cars. They also sent a copy of a private operator’s licence from the local council. In normal cases you cannot reclaim VAT on cars unless they are for exclusive business use. They also indicated that they intended to claim back VAT on a personalised number plate and clothing they claimed was to be used in an associated exercise business.
HMRC queried all of these reclaims. River Farm provided a copy of the insurance documents. HMRC noted that the insurance documents made it clear that it only covered social, domestic and pleasure use and that private hire was not covered, despite River Farm having a private hire licence. HMRC refused to accept the input VAT.
HMRC then obtained further details of the number plate, it was personalised to include Mr Maddison’s first name and so could not be accepted as advertising. Finally, HMRC refused the VAT reclaimed on the clothing as it was not uniform or protective clothing.
A total reclaim of VAT of £29’544 was refused.
River Farm claimed that the insurance for only social, domestic and pleasure was irrelevant given that all the other farm machinery had the same cover. HMRC noted that the insurance cover for one of the cars was later updated to remove the social, domestic and pleasure cover and replaced it with business only.
River Farm also provided HMRC with evidence that the vehicles could not be used by employees for private use but crucially the agreement did not include details of any penalties.
Following an appeal, River Farm took the case to the first-tier tribunal.
The tribunal noted that River Farm had taken advice from their accountant regarding the reclaiming of VAT on vehicles, but it did point out that River Farm appeared not to have understood the advice they were given nor acted on it.
A vehicle can only be considered exclusively for business use if it is only used for business journeys and never for private. The tribunal noted that a key consideration was the intention of the purchaser at the time of buying the vehicle, therefore when purchased the business must exclude any private use.
River Farm had initially taken out insurance including the social, domestic and pleasure use believing this was the only option, though they later changed this. The agreement River Farm had in place with its drivers had no penalty for private use so the tribunal considered this had no weight. It also found that the operator’s licence had no relevance, especially when during the hearing River Farm claimed they never intended to carry out private hire activity. Just as well as the car in question was a two-seater and was not permitted under the insurance policy to carry passengers.
Unsurprisingly the tribunal found it unlikely that the cars were intended to be used “exclusively for a business” therefore no VAT could be claimed on the purchase.
It was further found that there was no link between the private number plate and the business, no advertising was linked to it and so no VAT could be claimed.
As with the clothing, it was neither a uniform nor protective, therefore it could not be considered for use within a business and so no VAT could be claimed.
The appeal was dismissed outright.
While River Farm took the advice they appear not to have listened or understood it. Always check with your accountant before purchasing any major piece of equipment and certainly before speaking the Revenue!