VAT on cars, the law and trivial matters: de minimis non curat lex.
It’s a generally well know fact that VAT can’t be claimed on company cars if they are used for any non-business purposes. There are certain specific exclusions such as new cars for resale, taxis and those bought by driving schools. Otherwise, VAT can only be claimed if the car is used exclusively for business purposes and not made available for private use.
Whenever any business has claimed VAT and appealed HMRC’s assessments at the Tribunal, HMRC has almost always won. The main reasons are based on the premise that the cars are “available” for non-business use if the insurance policy permits use for “social, domestic and pleasure ” (“SDP”) purposes and if the cars are in any way physically available for such use.
This issue was discussed at the Tribunal in the recent case of Zone Contractors Limited. There is an excellent summary of the decision on Accounting Web http://tinyurl.com/zjwdbty so I won’t discuss it in any detail here. However the Tribunal agreed with the appellant on the basis that at the time the cars were purchased, employees were forbidden from using the cars for non-business purposes under a very strongly worded contract of employment, which included disciplinary procedures in such cases.
Does this set a precedent?
This decision is very welcome and considers the subject with common sense. However, before you go out submitting claims for VAT on your own company cars, or those of your clients, I think that the decision should come with a bit of a health warning. And unfortunately, it could well be as a result of one of the Tribunal’s most compelling arguments.
De minimis non curat lex: the law is not concerned with trivial matters
As well as the insurance cover, one of HMRC’s arguments is that employees can use the cars for minor personal errands – going to buy lunch, for example, during a business trip. In the past, Tribunals have usually agreed that this is sufficient “non-business use” to prevent VAT recovery.
However in this case, the Judge made a very definitive opposing view, making the following observation: “the Tribunal cannot accept HMRC’s assertion that private use would include buying cigarettes or lunch whilst out on a business journey, or even going off site to collect lunch. Such use must be entirely de minimis such as to conclude that it is non-business use at all”.. (see paragraph 56 of the judgement) Or, to use the oft-quoted latin version: “de minimis non curat lex”.
UK and European law
I think that this is a very interesting reference to this legal point. It’s an eminently sensible approach to this issue, but I think it gives HMRC a very useful reason for appeal, because the way I understand things, no “de minimis” use is allowed under the law and UK should be applied with a very narrow application.
What does this mean? One of the main principles of UK law is that it is to be applied in a very “literal” manner. This is an important distinction when compared to European law, which is usually applied in a “purposive” manner. 
In practice, this means that UK law must be applied according to the letter of the law: if the law says business use only, then the practice must be business use only. The law reflects exactly what was intended by the lawmakers at the time. The continental approach allows a government to use the “purpose” of the law, not just the precise wording.
It’s like the difference between black and white or many shades of grey. On this side of the channel, it’s either black or white and nothing in between.
VAT partial exemption: de minimis limit
But I think that the most important factor is that there is a very well-known and useful precedent about “de minimis” use. The VAT recovery rules include a specific set of “de minimis” limits that allow businesses making exempt supplies to claim back small amounts of VAT on costs as long as it falls within those “de minimis” limits. So when it comes to the use of company cars for non-business use, HMRC can argue that the law would have included a “de minimis” factor if this was intended.
So while the Tribunal decision is interesting, I think it’s a bit soon to be submitting appeals on this basis. I’m sure that HMRC will be issuing some response and I will be very surprised if they don’t appeal this decision very quickly.
Marie
3 October, 2016