Reclaim VAT on Company Van & Tax Implications

[Geo]

I run a Computer Software Company, I plan to diversify the business next year into Property Development.

If I buy a new van now to use for the Property Business next year can I reclaim the VAT.

If I use the van for personal use what are the Tax implications.

Thanks

[Nigel Lord]

Geo

You should ensure that the vehicle qualifies as a van for income/corporation tax and VAT purposes (i.e. it must be primarily designed to carry goods, not people and have a payload capacity of at least one tonne - 1,000kg and weighing no more than 3.5 tonnes).

Assuming that the vehicle is a van, you should be able to recover VAT, providing that you commence trading/register for VAT within 6 months. However, you may find that the nature of your trade (property development) could preclude you from recovering some or all of your input VAT. This is an area where you should seek professional advice.

If you use the vehicle for private use you will be subject to the scale charge for personal income tax purposes (assuming that you are incorporated). This is presently £500 per annum for vans less than 4 years old (£350 for older vans). You would be liable to tax on this benefit at your marginal income tax rate.

If you are unincorporated, the private usage element would be disallowed for income tax relief purposes.

If you require any further assistance please do not hesitate to contact us, and we will be happy to act on your behalf.

Nigel Lord
Lord Associates
Taxation & Business Consultants
Caxton House
Old Station Road
Loughton
Essex, IG10 4PE
020 8418 9101 & 07769 931852
mail@lordassociates.co.uk

[Ian McTernan CTA]

(Nigel, nice to have to back answering queries again after an extended absence!)

I would recommend that you keep the two businesses separate as there are a number of issues surrounding property development that do not sit too well with your current business. Setting up a new limited company is easy and will cause a lot less stress in the meantime.

On the van, this could be bought by your existing business and 'hired' to the new one as and when required.

Your present accountant should be able to advise you on this matter.

Ian McTernan CTA
McTernan Associates
Chartered Tax Advisers
ian@imcternan.com

[Nigel Lord]

Further to Ian's comments, you should make sure that using a second company does not adversely affect your Corporation Tax bands if it is 'associated' with the first company. Take advice before entering into any arrangements.

[paultaylor@vatease.c]

As touched on by the previous two respondants, property development has VAT implications which could impact negatively upon your existing business.

The sale or let of some types of property is exempt from VAT. Related input VAT and a proportion of VAT on overheads is not reclaimable. This may impact upon the reclaim of VAT by your existing business.

If you were to use the van for personal use you would be expected to disallow some input VAT on the purchase or account for some output VAT on a charge for private use.

Regards

Paul Taylor
http://www.vatease.co.uk/