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 Andrew Needham, Director of VAT Solutions (UK) Ltd, describes some key issues in the distinction between cars and commercial vehicles.

Andrew Needham

Introduction

There has often been a fine line in VAT terms between a car and a commercial vehicle, given that cars generally don’t get VAT recovery, but vans do. With the addition of ‘car-derived vans’ and combination vans’ to the market in the last couple of years, the fine line has got that little finer! Given this, we thought it might be helpful to highlight some of the key issues involved, using some guidance reproduced below from the HMRC website.

“You can usually reclaim VAT on a commercial vehicle. It is normally easy to tell the difference between a car and a commercial vehicle, but there are some vehicles where it is not so clear cut. These are car derived vans or combination vans.

Car-derived vans

These are vehicles that are based on cars but are produced and sold as vans by the manufacturer or converted to a commercial vehicle by a vehicle converter. We'll consider these vehicles to be commercial if all these three conditions are met:

• The alterations made by the manufacturer or converter meet the technical criteria specified in our guidance. If you're in any doubt, get written confirmation from your supplier. If you need more information about the guidance, contact us.
• The adaptations give the vehicle the functionality of a commercial vehicle. Simply removing a back seat isn't enough.
• The space that remains behind the front row of seats is highly unsuitable for carrying passengers.

Combination vans

These vehicles look like vans, but have seats for carrying passengers or are designed to have them fitted behind the front row of seats. We'll consider them to be commercial vehicles if either or both of these conditions are true:

• they are vehicles with a payload of more than one tonne after the addition of the extra seats
• the dedicated load area - that is, that load area which is completely unaffected by the additional seating - is larger than the passenger area, so as to make the carriage of goods the predominant use of the vehicle

We've produced a list of vehicles based on our guidance. However, model specifications do change, so this list may not be up to date. If in any doubt, contact us.

If you've claimed VAT in a previous VAT period for a vehicle you thought was a van but we consider it to be a car, you should make an adjustment for the overclaim. Of course, if you've failed to reclaim VAT for a vehicle you thought was a car but we consider it to be a van, you'll probably want to make an adjustment to claim back the VAT but there are time limits within which you can claim.”