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HMRC internal manual

VAT Input Tax

HM Revenue & Customs
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Motoring expenses: conditions to be met to recover VAT on qualifying cars


This page of the manual talks about the treatment of input tax on cars that a business has bought for a qualifying purpose. See VIT53300 for details of how to treat input tax on leased cars. That part of the manual also looks at whether a lessee using a leased car for business and private purposes can recover input tax on cost of the lease.

Stock in trade cars

A stock in trade car is one which is either;

  • produced by the manufacturer who intends to sell it within twelve months of its production; or
  • obtained by a dealer who intends to sell it within twelve months of the date that VAT was incurred on its purchase, acquisition or importation.

Stock in trade cars do not include second hand cars that are not qualifying cars.

A car remains stock in trade for so long as the dealer or manufacturer intends to sell it within the next twelve months. A car stops being stock in trade only if at any time the dealer no longer intends to sell the car within the next twelve months.

Imagine a dealer buys a car on 31 March 2010 and it is still on hand on 1 April 2011. It was, and remains, stock in trade provided that on 31 March 2010, and at all times up to and including 1 April 2011, the dealer intended to sell it within the next twelve months. So it would be still be stock in trade if on 1 April 2011 the dealer intends to sell the car by 31 March 2012.

A self supply occurs if:

  • a car stops being stock in trade; and
  • it no longer qualifies for input tax recovery under one of the other exceptions.

See VIT53300.

However, a self supply for VAT purposes does not take place if the motor dealer removes a car from stock in trade to be used primarily for another qualifying purpose, for example self drive car hire.

Car dealers who buy second hand qualifying cars for stock can also deduct input tax in full. However, when they buy non qualifying cars the second hand scheme may be used. This means that tax is only payable on the profit margin.

Manufacturers loan cars

Manufacturers often loan cars to customers for use as demonstrators. The manufacturer cannot show whether or not the customer makes the demonstrator available for private use. The manufacturer must normally account for tax on the self-supply.

Similarly, manufacturers also sometimes loan courtesy cars to journalists, media and sports personalities. Such loans will also create a self-supply.

Research and development cars

Some businesses correctly claim input tax on certain cars as research and development (R&D) cars. HMRC accepts that these may be taken home overnight by an individual where the business shows that such use is necessary as part of a genuine test programme. We have agreed with the Society of Motor Manufacturers and Traders that genuine tests include such activities as:

  • routine driving tests for emission purposes;
  • stop-start driving in rush hour conditions;
  • tests for calibration;
  • hot/cold starts;
  • NVH (noise) tests;
  • ride and handling appraisals; and
  • specific tests by component and electronic engineers.

The above list is illustrative and not exhaustive.

HMRC also accepts input tax recovery in respect of other R&D cars, such as cars used by oil companies to test oils or fuels, if:

  • the cars are taken home necessarily and solely as part of a genuine R&D test programme; and
  • they are not otherwise available for private use.

Primary purpose for taxi hire, self drive hire or driving instruction

Although HMRC accepts that there will be some private use of these cars input tax can be reclaimed in full if the car is bought primarily for;

  • hire with the services of a driver for the purpose of carrying passengers;
  • self drive hire; or
  • providing driving instruction.

Emergency services marked cars

Marked emergency service cars are by their nature not suitable for private use. HMRC has agreed with the Home Office that sometimes an emergency services officer will have to take a marked emergency service car home and keep it overnight to carry out official duties the next day. When this happens:

  • that particular use will be treated as part of the relevant authority’s non-business activity; and
  • the authority’s entitlement to recovery of tax under VAT Act 1994, section 33 will not be affected.

Emergency services are the police, fire and ambulance services.