VAT reclaim on car for 'business use only'
Discussion
A recent ruling by the First Tier Tribunal Tax Chamber that illustrates just how carefully constructed & implemented 'not available for private use' needs to be
http://www.financeandtaxtribunals.gov.uk/judgmentf...
http://www.financeandtaxtribunals.gov.uk/judgmentf...
I am not sure you picked the relevant highlights of this case at all.
Here is my tl;dr version
42. We do not accept Mr Minton’s submission that the physical restraints are somehow more important than any legal restrictions. It is clear that the existence of legal restrictions was significant in both Upton and Elm Milk. It seems to us that we must consider the combined effect of both physical and legal restrictions in the circumstances as a whole. We therefore turn to the legal restrictions.
43. The Appellant’s failure to consider insuring the Vehicle only for business use adds little if any weight to the Respondents’ arguments. It was not suggested that the Appellant had consciously decided to retain insurance for social domestic and pleasure purposes. This was simply one form of restriction that might have been implemented but was not.
44. We accept that there was an agreement between Mr Bradley and Ms Eckersall at the time of purchase that neither of them would use the Vehicle for private purposes. We are not satisfied from the circumstances in which the agreement was made that it was intended to have any legal effect. It was not documented in any way and there was no sanction for breach of the agreement. It contrasts with the circumstances in Elm Milk where there was express provision that private use would be a breach of the director’s contract of employment. In that case there was also a formal board resolution and any private use would have been a breach of the director’s duties to the company.
45. There is force in Mr Minton’s submission that it would be unrealistic to expect a company such as the Appellant to pass a formal board resolution. However in the light of the relationship between Mr Bradley and Ms Eckersall it is not unrealistic to expect at least some formalilty if the agreement was intended to have legal effect. In particular we would expect to see some sanction for breach. In Elm Milk for example the agreement was incorporated into the director’s contract of employment. In our view the agreement between Mr Bradley and Ms Eckersall was simply a non-binding informal agreement as to use of the Vehicle. It was not a legal restriction on private use enforceable by the Appellant.
46. In the absence of any effective legal restrictions we do not consider that the physical restrictions lead to a conclusion that there was no intention to make the Vehicle available for private use. As we have stated above, the physical restrictions could be ignored. They did not in themselves prevent private use of the Vehicle by Mr Bradley or Ms Eckersall, although they did make possible that any private use by one could be identified by the other. In the absence of a sanction we consider that the Vehicle was available for private use and that at the time of purchase the Appellant must be taken to have intended to make it available for private use."
And the ultra tl;dr version
Pass a Board resolution that makes it a breach of the contract of employment, with sanction, for the vehicle to be used privately and ensure that is accepted and agreed by anyone with any possible access to the vehicle as a condition in the contract of employment.
Here is my tl;dr version
42. We do not accept Mr Minton’s submission that the physical restraints are somehow more important than any legal restrictions. It is clear that the existence of legal restrictions was significant in both Upton and Elm Milk. It seems to us that we must consider the combined effect of both physical and legal restrictions in the circumstances as a whole. We therefore turn to the legal restrictions.
43. The Appellant’s failure to consider insuring the Vehicle only for business use adds little if any weight to the Respondents’ arguments. It was not suggested that the Appellant had consciously decided to retain insurance for social domestic and pleasure purposes. This was simply one form of restriction that might have been implemented but was not.
44. We accept that there was an agreement between Mr Bradley and Ms Eckersall at the time of purchase that neither of them would use the Vehicle for private purposes. We are not satisfied from the circumstances in which the agreement was made that it was intended to have any legal effect. It was not documented in any way and there was no sanction for breach of the agreement. It contrasts with the circumstances in Elm Milk where there was express provision that private use would be a breach of the director’s contract of employment. In that case there was also a formal board resolution and any private use would have been a breach of the director’s duties to the company.
45. There is force in Mr Minton’s submission that it would be unrealistic to expect a company such as the Appellant to pass a formal board resolution. However in the light of the relationship between Mr Bradley and Ms Eckersall it is not unrealistic to expect at least some formalilty if the agreement was intended to have legal effect. In particular we would expect to see some sanction for breach. In Elm Milk for example the agreement was incorporated into the director’s contract of employment. In our view the agreement between Mr Bradley and Ms Eckersall was simply a non-binding informal agreement as to use of the Vehicle. It was not a legal restriction on private use enforceable by the Appellant.
46. In the absence of any effective legal restrictions we do not consider that the physical restrictions lead to a conclusion that there was no intention to make the Vehicle available for private use. As we have stated above, the physical restrictions could be ignored. They did not in themselves prevent private use of the Vehicle by Mr Bradley or Ms Eckersall, although they did make possible that any private use by one could be identified by the other. In the absence of a sanction we consider that the Vehicle was available for private use and that at the time of purchase the Appellant must be taken to have intended to make it available for private use."
And the ultra tl;dr version
Pass a Board resolution that makes it a breach of the contract of employment, with sanction, for the vehicle to be used privately and ensure that is accepted and agreed by anyone with any possible access to the vehicle as a condition in the contract of employment.
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