Insuring Privately Owned Vehicle

mrb82 Well-KnownRegistered Posts: 147
Hi all,

How do you process your clients' privately owned vehicles? I have a fair few clients come back to me advising their private vehicle is insured through the company. In this case, for VAT on say the repair to that vehicle, how is it treated? Is it company car as it's insured through the company?

I'm confused.



  • Monsoon
    Monsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    I assume your client trades through a Limited Company.

    It's either a company car, or it isn't. You've said it's a privately owned vehicle. Therefore it is not a company car.

    If he's paying for private expenses through his Limited Company, then these are either gross debits to the DLA (ignroe VAT), or they are Benefits in Kind (this is likely to be less tax efficient).
  • mrb82
    mrb82 Well-Known Registered Posts: 147
    Thanks for the clarification monsoon :)
  • groundy
    groundy Trusted Regular Registered Posts: 495

    It is not right to complete ignore VAT although I agree with what you say its either a company car or private. However, were a private vehicle is used for business a mileage is claimed then obviously VAT can be claimed on mileage, however you may also claim VAT on any service/repairs with the net cost being charged to DLA.
  • Monsoon
    Monsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    Really? How does that work/ can you point me to legislation? If it's a private car and he's claiming mileage, then that has a VAT element and it's supposed to cover everything. How can he claim VAT back on servicing etc as well?

  • groundy
    groundy Trusted Regular Registered Posts: 495
    See link below:

    We have had this accepted on several VAT visits. The VAT amount reclaimed on mileage is supposed to cover the fuel element I think.
  • TreadStone
    TreadStone Feels At Home AAT Licensed Accountant Posts: 280
    groundy wrote: »

    I would have thought that only related to cars used by sole traders and partnerships. I'm sure this doesn't apply to private cars used by directors/employees for business trips.

    If what you say is correct, then x number of directors driving bangers could, in theory, each claim the input on hundreds of pounds worth of repairs/servicing simply because they may use their car for minor business use and claim a business mileage.

    I've not researched this by the way, just my gut instinct. I've always put the gross expense to DLA and not claimed the input.

    Happy to be corrected though :001_smile:
  • Fingersan
    Fingersan Feels At Home Registered Posts: 84
    I would have agreed with you TreadStone with your thoughts on this only relating to sole traders and partnerships, but the second paragraph of S5.1 reads "If you are a sole proprietor or partner and use a vehicle solely for your own private motoring you cannot reclaim the VAT on repairs etc as input tax." Why would HMRC specifically mention sole traders & partnerships if it did not relate to companies?

    Anyone got any spare time to look into this? :lol: (he says feeling stressed aout completing a handfull of 31 March 2012 year end companies)!! :ohmy:
  • TreadStone
    TreadStone Feels At Home AAT Licensed Accountant Posts: 280
    Precisely. Section 5.1 distinguishes between some business use in the first paragraph and no business use in the second for "businesses".

    By using the term "businesses", I read this as sole traders and partnerships only - not companies.

    I think 5.1 is referring to business use generally and not in the instance of a director/employee :001_unsure:

    I think it's just HMRC wording confusing matters.
  • deanshepherd
    deanshepherd Font Of All Knowledge Registered Posts: 1,809
    Why would you read 'businesses' as meaning only sole-traders and partnerships?

    I believe the distinction made in that paragraph is to separate the treatment from company cars, whereby input is reclaimable in full regardless of whether there is any business mileage, as the provision of the car itself is wholly a business cost due to it being an employee emolument.

    As a sole-trader, you cannot claim both business mileage and actual running costs as an expense and therefore it cannot follow that you can reclaim VAT on both mileage and running costs. It is either one or the other.

    As a company, you can pay your employees/directors what you like but I would suggest in that scenario that any payment of a directors repairs (or insurance for that matter) will be settlement of a pecuniary liability. No VAT to reclaim and will go through payroll as extra salary.

    Happy to be proved wrong though!
  • mrb82
    mrb82 Well-Known Registered Posts: 147
    I'll add a bit of clarification for you if this changes anything...

    A client (usually a director) has an accident in his company car (we ask the client if it is a company car and if their company is registered for VAT) and we provide a hire vehicle to them. We bill the at fault side for the hire vehicle, but as the service is provided to the VAT registered client company, the client company pays the VAT element of the hire (we take in to account 50% block rule for personal use).

    We cash account so once we recover the hire charges then we invoice the client company the VAT element. At this point (usually if the VAT is over a few hundred pounds), the client calls me and says that the vehicle involved in the accident actually turns out to be privately owned by them, just registered on th V5 and insured to the company, so they can't reclaim the VAT on it.

    personally I think it's a way of avoiding paying, but I don't understand enough about this as I'm just a credit controller.

    Does this change anything?

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