Mike Purcell Accountant and Software Consultant

VAT Misconceptions – Be Aware!

My car dealer has advised me that the VAT incurred on the purchase of an electric car is claimable in full.

An electric car is no different in this case to a car which runs on any other fuel. VAT is not claimable unless it meets certain exception conditions. In brief, the exceptions apply for a car which:
•    is stock in trade of a motor manufacturer or dealer
•    is intended to be used primarily as a taxi, for driving instruction, or for self-drive hire
•    will be used exclusively for the purposes of the business and would not be made available for the private use of anyone (including commuting to and from work)

I am allowed to claim 100% VAT on my leased car as it is a qualifying vehicle.

As with the electric car, it needs to meet the same exception conditions above to be classed as a ‘Qualifying’ vehicle. However, for leased cars you are allowed to claim for 50% of the VAT if there is some business use. This relates to cars only. If it is a commercial vehicle then 100% of the VAT can be claimed.

A building or a piece of land is itself opted to tax, and that option continues after the building is transferred to a new owner.

It is not the land or building which is opted to tax, but the “interest in” that land or building held by the entity which has made the decision to opt to tax.

It’s possible to recover VAT on my business entertainment expenses.

HMRC only allows VAT to be claimed on the cost of entertaining your employees.
If you’re entertaining somebody else, then that’s classed as business entertaining, which means you can’t claim VAT on the expenses.

Mistakes mean heavy fines

While mistakes on your VAT return are far from ideal, it’s a misconception that HMRC will immediately issue a large penalty for an error. The circumstances of the error as well as the simple calculation of how much, if anything, it has cost HRMC will determine how the mistake is handled.
For example, there are certain errors of up to £10,000 that can be accounted for on your next return. It’s important not to get complacent, however, and judgement is needed as to whether the mistake should be reported. If you know there is an error that needs reporting, let HMRC know as soon as possible. When it comes to any tax, honesty always pays. If in doubt, let us know and we can advise your best options.