It is widely understood that businesses are unable to recover the VAT on a business car, unless the car is specific to the business (for example a driving school car or taxi). Indeed, the bar for a trader to claim input tax in these circumstances is set very high; there must be no private use AND they must be able to show that it is not “made available” for private use. However, a recent first tier tribunal case, Barry John Graham v HMRC [2019] TC7313 sheds new light on how traders might successfully make a claim to input VAT recovery.
In Barry John Graham, the taxpayer successfully claimed all the input tax on three business cars: an Audi A8, a Mini Cooper S and a Porsche Cayenne. Total input tax of over £20k!
Mr Graham was a specialist in mainframe computers, charging up to £5k a day. He wanted to signify his status with the cars used by his business when visiting clients. Mr Graham employed his son and daughter in the business, and they were allowed to use the cars for business purposes too.
- He knew the cars should not be used privately;
- The son and daughter each had contracts of employment which prohibited any private use;
- The keys to the cars were kept in a safe and only Mr Graham himself knew the combination; if one of the children needed the car and were given the combination, he then changed it;
- All three had their own cars “of equivalent status” for private use; and
- The trader was able to account for the vast majority of journeys which had been undertaken in the cars.
The tribunal also dismissed certain arguments advanced by HMRC:
- The insurance allowed private use; due to family circumstances at the time it was not possible to get “business-only” cover so the tribunal disregarded this point;
- The cars were normally parked at the trader’s home (previously this has been seen as a key point in various cases on car VAT deduction); and
- The employment contracts were in practice no impediment to private use.
The First Tier Tribunal’s decision is persuasive but not binding, so it does not represent “watertight” support for other similar claims; but it does nevertheless indicate how other traders might approach such an issue in future.
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