Should you apportion input tax on commercial vehicles?

What’s a commercial vehicle?

The basic definition of a commercial vehicle is that it is any vehicle which is specifically designed for the transportation of goods, objects or equipment, as opposed to passengers. They come in a variety of sizes, specifications and shapes to suit their unique purposes.

Example. A fork lift truck is a commercial vehicle; other common examples include lorries, vans, double cabs and motor caravans.

A car is not a commercial vehicle because it has been designed with the intention of transporting passengers from A to B; it will have rear windows and usually rear seats.

In case of doubt about whether a vehicle is a car or commercial vehicle, check HMRC’s list.

Why is the difference important?

The reason that your business must differentiate between cars and commercial vehicles is because there is an input tax block on the purchase of cars that are intended to be made available for private use. It is also necessary to apportion input tax on road fuel expenses carried out in your cars to reflect private trips.

The input tax split on road fuel costs will be based on a mileage record that must be kept for each car, which clearly shows your business and private trips.

If you don’t keep a mileage log, you must account for output tax on the private use of each car by using HMRC’s scale charge system, which is based on CO₂ emissions.

The scale charge system can often produce a higher VAT bill than an input tax apportionment based on actual logged journeys.

Private use

When your business buys a commercial vehicle, there will almost certainly be a clear business purpose linked to the acquisition, e.g. delivering stock to your customers. However, a percentage of private use will be inevitable, even if it is a short detour by the driver to buy a newspaper and sandwich. HMRC will not require an apportionment of input tax on either the purchase price or ongoing fuel expenses if the private use is minor: “Generally, HMRC views any incidental private use of most types of commercial vehicle as de minimis. We would not restrict input tax in that case.”

You should keep records if necessary to show that any private use is negligible in the event of a future HMRC query.

Significant private use: two methods

If your commercial vehicle has significant private or non-business use, you have two ways of accounting for VAT on the purchase price:

• apportion input tax so that you only claim the element relating to business use; or
• recover input tax in full and account for output tax each period under the Lennartz principle.

You can still claim 100% input tax on repair and maintenance costs. HMRC has always accepted that any vehicle needs to be in a state of good repair to carry out business trips.

You must still apportion input tax on road fuel costs if the private trips made in your commercial vehicles are not incidental.