When companies purchase a vehicle, they can reclaim VAT on the transaction only if they can show that they have no intention of making it available for private use. As a case concerning the provision of a high-end Audi car to a director showed, that restrictive test represents a very high hurdle to overcome.

After buying the car, the company reclaimed input tax on the transaction. Following an inspection, HM Revenue and Customs (HMRC) took the view that it was not entitled to do so and assessed it for £9,052 in VAT. A careless inaccuracy penalty of £1,357 was also raised.

Challenging those bills, the company pointed to the director's categoric denial that he had ever used the car for anything other than business purposes. That assertion was supported by the car's low mileage. The director had another vehicle for his personal use and also had access to his spouse's car.

In dismissing the appeal against the assessment, however, the First-tier Tribunal (FTT) derived little assistance from the fact that the car was parked at the company's trading and registered office address. That address was apparently also the residential address of the director and his wife, the company's only employees.

The FTT observed that the car was, at least for part of the relevant period, insured for social and other non-business purposes. It was not satisfied that that arose from a clerical or administrative error on the part of the insurer. The director had stated that it would simply be impractical to put in place measures or arrangements that would prevent the car's personal use.

To succeed in the appeal, it was necessary for the company to establish not simply that there was no intention to use the car for private purposes but that it was not even available for such use. On the evidence, that rigorous test had not been satisfied. The appeal against the penalty was also dismissed, although HMRC consented to suspend its payment on terms agreed with the company.