How to account for VAT if your business allows goods and services to be used for temporary or permanent private use.
Using goods privately
Businesses often supply their own goods and services for private use. You may have to account for VAT on them if you’re VAT-registered and your business:
- buys and sells goods, and you take something from stock for your own private use
- uses equipment like tools and machinery and you lend something to an employee
If goods belonging to your business are used privately then you’re making a VAT taxable supply and you’ll have to account for VAT at the appropriate rate. The way you account for the VAT depends on:
- whether you’ve given the goods away permanently or just lent them
- whether or not you received a ‘consideration’
Some things, like motor fuel, have their own special rules for dealing with the VAT when they’re used privately.
Goods supplied for permanent private use
You’ll have to account for VAT on goods taken out of your business permanently for private use. These goods might include:
- items from stock that you would normally sell to customers
- goods that your business makes or produces
- materials that your business uses to make things
- business supplies, like office supplies and protective clothing that you keep in your stores
- business assets, like computers, tools and machinery that your business uses
Private use includes use by you, or someone else you give the goods to. The way you should account for the VAT depends on whether or not you receive a consideration in return for the goods.
Goods supplied for temporary private use
If you make items owned by your business available for temporary private use, either by using them personally or by lending them to someone else, then you’re making a VAT taxable supply of services.
If you let someone use a business asset and receive nothing in return then VAT is due on the cost to your business of lending it. This will be the same if you use the item yourself.
To work out the cost of the supply you’ll need to:
- take the amount that the item reduces in value during the year (depreciation)
- work out how much of the year the item is used privately
- apply that figure to the yearly depreciation figure
Motor fuel you use privately
You and your employees might use either your own vehicles or those owned by the business for a mix of business and private motoring. If your business pays for the fuel then you can usually reclaim all of the VAT you pay on it as long as you use the appropriate ‘fuel scale charge’ to account for output tax on the fuel used privately. Or, you could either reclaim just the business proportion of the VAT or not reclaim any VAT.
You may also be able to reclaim all of the VAT on repairs, maintenance and certain other motoring costs your business pays for as long as the vehicle is at least partly used for business purposes.
Services you use privately
You might sometimes purchase services for your business but then put them to private or non-business use. This includes making private use of the services yourself or making the services available to others for their own private use. If you do this, your business may be making a VAT taxable supply of services on which you need to account for VAT.
VAT is due on the cost to your business of making the services available for private use. You can use various methods to work out the cost, as long as you come up with a fair and reasonable figure. For example, you can use a similar method to the one that’s used for ‘Goods supplied for temporary private use’ and:
- think of the service as a ‘business asset’ and work out how much it’s worth
- work out how much the asset would reduce in value during the year (depreciation)
- work out how much of the year the asset is used privately
- apply that figure to the yearly depreciation figure
This is only a suggested method, and if you want to use a different one and you’d like to talk it through, you can contact the HMRC VAT Helpline.
Continuous services you use privately
If your business buys continuous services that are used privately, such as your telephone, you can only reclaim the VAT on the business use. For example, if your business use comes to 60% of total usage then you would only be able to reclaim VAT on 60% of the cost. Dividing the cost of something between business and private use is called ‘apportionment’.
Goods you put to use in your own business
If your business produces goods, or if it buys and sells them, you might use these in the business instead of selling them on.
There’s not usually any VAT due on goods that you use like this because you haven’t made a VAT taxable supply. But there are a few exceptions, including cars that motor traders put to use in their own business. These exceptions are known as ‘taxable self-supplies’. You must make a note in your VAT records of goods you use within the business.
Self-supply of cars
If you’re a motor manufacturer or dealer and you take a car from your stock to use in your own business, then this is a taxable self-supply. You’ll need to account for VAT on the supply.
Other taxable self-supplies
There are a few other situations when goods that you put to use in your own business are treated as VAT taxable self-supplies. These are:
- certain non-domestic buildings that you use your own labour to construct or extend
- cars that you claimed input tax for because they were to be used as a taxi, self-drive hire car or driving school car, but then put to some other use
Things you buy for the business but then sell to someone
If you buy something for use in the business but later sell it to a customer then VAT is due on the amount you sell it for. This includes selling it to one of your employees.
A consideration is a payment, but it doesn’t have to be money. It could be many other things, such as an agreement to do something in return for the goods, or in return for the use of the goods.
- given the goods away permanently then you’ve made a supply of goods for VAT purposes
- just lent the goods temporarily then you’ve made a supply of services
- given away an asset as a business gift, there’s no VAT due if the total cost of all gifts made to the same person in the same year is no more than £50
If you receive a consideration
A consideration is something given to you in return for something you’ve supplied. The consideration could be in money, goods, services or any combination of the three.
If the consideration you get is money, then the amount is VAT-inclusive and you need to calculate the VAT due at the correct rate for the supplies you’ve made. If what you’ve supplied is zero-rated, there’s no VAT due.
If the consideration you get isn’t money, or is part money and part something else, such as goods and services, you need to calculate the value of the part that isn’t money. The total amount (the non-monetary part plus any money) is VAT-inclusive and you need to calculate the VAT due according to the correct rate for the supplies you’ve made.
If you make supplies to a business that you’re associated with, and you supply goods, services or anything else to them at prices below the open market value, you’ll need to contact the VAT Helpline to discuss how to account for the VAT correctly.
If you don’t receive any consideration
If you give something away and receive nothing in return for it then VAT is due on the value of what you’ve supplied. This is the money that would be payable to purchase the same goods - including age and condition - at the time of your supply.
If you can’t find out that value, then it’ll be the money that would be payable to purchase similar goods - including age and condition - at the time of your supply. If you can’t work that out, then it will be the cost of producing the goods if they were made at that time.
If the goods are standard-rated the VAT due will be 20% of the value. Reduced-rated goods will be 5% of the value. You do the same calculation if you take something from the business for yourself and make no payment for it.