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HMRC internal manual

VAT Input Tax

Motoring expenses: the self-supply provisions related to the private use of cars

The self-supply provisions are set out in the VAT (Cars) Order 1992. They ensure that a business which obtains input tax relief on a car does not get an unfair advantage. The business would get the relief if the car is intended for a use that qualifies for it (known as a “qualifying use”, see VIT52400).

It might get an unfair advantage if it then puts the car to a use which would not qualify for input tax relief (known as a “non-qualifying use”). If this happens the business must account for output VAT on a deemed self-supply of the car.

What triggers the self-supply is the change from a qualifying use to a use which triggers the full input tax block. The time of the self-supply is the date that the change of use takes place.

For example, if a hire company removes a car from its hire fleet to use as an ordinary company car a self-supply will take place at the time of the change of use. A self-supply does not take place if the business changes a car from one qualifying use to another qualifying use. For example, if a motor dealer removes a car from stock in trade car to use primarily as a self-drive hire car a self-supply would not take place. This is because the second use is itself a qualifying use.

You should note that for stock in trade cars (see VIT52400) a self-supply charge is not triggered simply because the dealer or manufacturer has not sold the car within 12 months of having obtained it. The car ceases to be stock in trade only if at any time the dealer ceases to have the intention to sell the car within the following 12 months.

If HMRC finds that a manufacturer or dealer has kept stock in trade cars on hand for more than 12 months after obtaining them we will ask whether it really was the intention to sell those cars within the original time limit.

If a business claims input tax relief HMRC will check that the business systems identify changes of use and account for tax on any self-supply. HMRC officers will look closely at those types of qualifying car where the risk of change of use is high, for example pool cars.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)