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HMRC internal manual

VAT Input Tax

HM Revenue & Customs
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Legal history: cases about private use of cars

Please note that the following material is not a full summary of the case - it merely highlights the principle referred to in the appropriate section of this manual.

Caledonia Motor Group Ltd VTD 20021

A business that sold cars allowed its employees to use demonstrators privately. It accounted for output tax on the deemed supplies. The tribunal dismissed the subsequent claim by the business that it had calculated too high an output tax amount.

The tribunal found that the business had not provided satisfactory evidence to calculate the output tax properly due. It had therefore not shown that there had been an overdeclaration of tax. The tribunal observed that it did not propose to provide a ruling which sets out all the factors that determine how the costs of private use of demonstrator vehicles are to be calculated.

Enkler 1996 STC 1316

A woman began a business of hiring out a motor caravan. For two years she mostly hired the caravan to her husband, a tax consultant by whom she was employed. She then told the tax authorities that she intended to take the caravan into private use.

The Court held that the hiring out of tangible property was an economic activity if it was done for the purpose of obtaining income on a continuing basis. The Court clarified that the taxable amount relating to the supply of services of renting out the caravan must include expenses incurred during the period that the goods were at the disposal of the taxable person in such a way that they could be used at any time for non-business purposes. Therefore, the proportion of the total expenses to be included must be proportionate to the ratio between the total duration of actual use of the goods and the duration of actual use for non-business purposes.

Elm Milk Ltd 2006 STC 792

A business bought a car for its managing director. It recorded a resolution that the car was for business use only. The managing director had another car that was used for private journeys.

The Court held that there was no reason why a car could not be made unavailable for private use by suitable contractual restraints, and that a company could enter into a binding employment contract with its sole director. Therefore, on the facts of the case, the car was available for business use only and input tax could be reclaimed.

Masterguard Security Services Ltd VTD 18631

A business provided cars to the security guards that it employed. It was allowed to recover input tax on the cars because it banned the employees from using the cars for private use. It was able to show that all the employees had their own cars which they used privately.

Peter Jackson Jewellers Ltd VTD 19474

A company that had four shops bought a car. The tribunal allowed input tax to be recovered on the car. The company had evidence to show that the car was used to transport stock and that private use of the car was prohibited.

Phillips (G) VTD 12184

A business used a car for business and private purposes. It did not account for output tax on private use of the car. The business contended that 95% of the mileage was business use. When the car was used for private mileage the car was given only enough fuel to make that journey. That fuel was paid for privately by the sole proprietor.

The tribunal observed that there was no evidence to show the amount of private use. Therefore, there was no way of showing that fuel for private use had not been paid for out of business funds. The tribunal observed that the quoted private use figure was very low and that ‘doubt could only be displaced by contemporary log entries’.

Upton (CM) t/a Fagomatic 2002 STC 640

A sole proprietor bought a car. The Court observed that, where an individual trader bought a car, the fact that it deliberately did so and took out insurance allowing private use meant that the person must have intended to make the car available for their own private use. Therefore, the tax claimed on the purchase of the car was not deductible because the car was available for private use (even if it was never intended that the car be put to that use).