Tax implications on purchase of a commercial vehicle

Question.

 

I have recently bought a double cab pickup to use in my business, can I reclaim the VAT on the purchase? And are there any income tax implications?

 

Answer.

 

For tax purposes there are different treatments for cars and commercial vehicles. Usually a double cab pickup would be considered a car, however there is a clause for double cab vehicles to treat as a commercial vehicle where they have a payload of one tonne or more.

 

VAT cannot be reclaimed on the purchase of cars unless it is stock in trade for a manufacturer or dealer, it is intended to be used primarily as a taxi, driving instruction car, or self-drive hire car, or it will be used exclusively for business purposes and would not be made available for the private use of anyone. The private use condition is strictly applied by HMRC.

 

On the purchase of commercial vehicles by a business VAT can be recovered. However, again if there is private use of the vehicle an adjustment is required to ensure VAT on the private use is not reclaimed. Whether the pickup is considered a car or commercial vehicle will also impact the capital allowances your business can claim in reducing its taxable profits.

 

Capital allowances rates available on a car depends on the CO2 emissions as follows: A writing down allowance of 100% is available for cars with CO2 less than 75g, 18% if CO2 emissions are between 76g – 130g and 8% if the CO2 emissions are greater than 130g/km.

 

A commercial vehicle is treated as plant for capital allowances, therefore, while there may still be a personal use adjustment the business can claim annual investment allowance (AIA) at 100% in the year of purchase or if AIA is already utilised, a writing down allowance at 18%.

 

You should also consider the tax implications for employees’ private use of the pickup, as this represents a non-cash benefit in kind and they will be taxed on the value of the benefit at their marginal rate of tax. If considered a car this is calculated based on its list price when new, dates it is made available and its CO2 Emissions. For vans there is a flat rate benefit of £3,350 (18/19) which they would be taxed on. If fuel for private use is also provided this may give rise to an additional benefit.

 

The advice above is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

 

Get in touch with Kellyanne Murtagh via email k.murtagh@pkffpm.com