TXF6 UK
Syllabus F. Value Added Tax F2. Computation of VAT liabilities

F2g. Circumstances in which input VAT is non-deductible

Syllabus F2g)

Recognise the circumstances in which input VAT is non-deductible.

Non-recoverable input VAT

Input VAT cannot be recovered in the following circumstances:

  1. Input VAT cannot be recovered in respect of business entertainment of UK customers

  2. Input VAT cannot be recovered in relation to any items that are privately used by an owner of a business. 

    For example, if an owner purchases stationery for private use, input VAT cannot be recovered on this purchase.

  3. Input VAT cannot be recovered on motor cars (unless they are used 100% for business purposes). 

    This applies to both employees and owners of businesses. 

    A car must be used 100% for business purposes in order for input VAT to be recovered on it's purchase. 

    For example, an employer purchases a car for his employee. 

    The employee uses this car for both business and private purposes. 

    Input VAT cannot be recovered on the purchase price of this car.

Input VAT can be recovered in the following circumstances:

  1. Input VAT can be recovered where fuel is used for private mileage (either by a sole trader or an employee), but output VAT must be accounted for. 

    Output VAT is calculated according to a scale charge based on the car’s CO2 emissions. 

    The scale charge is VAT inclusive and will be provided to you in the exam.

  2. Input VAT can fully be recovered in respect of repairs to a motor car, provided that there is some business use.

    For example, an employer purchases a car for his employee.

    The employee uses this car for both business and private purposes. 

    Input VAT can be recovered on the repairs incurred in respect of this car.

  3. Input VAT on business entertainment is recoverable if it relates to the cost of entertaining overseas customers!

Illustration:

In the quarter to 31 March 2019, Shiva claimed all of the input VAT on her fuel cost (20%), which he uses for private purposes.

The fuel cost was £1,200 (VAT inclusive).

The relevant scale charge for the car is £463. 

How much VAT will be paid/reclaimed for the quarter ended 31 March 2019?

Solution

Input VAT claimed:
£1,200 * 1/6 = £200

Output VAT charged:
£463 * 1/6 = £77

Net VAT reclaimed:
£123

Illustration:

Lina Ltd. is registered for VAT. All of the sales are standard rated and all figures are inclusive of VAT. 
 

The following information relates to the company’s VAT return for the quarter ended 31/03/2019:

  • Standard rated sales of £60,000.

  • Standard rated purchases and expenses of £30,000.

  • On 01/01/2010 Lina Ltd. purchased a motor car for an employee costing £12,000 VAT inclusive.

    The car is used for both business and private purposes.

  • Lina Ltd. paid for the petrol and repairs of the car. 

    The relevant quarterly scale charge is £300 for the quarter to 31/03/2019.

    The scale charge is based on the C02 emissions of the car.

  • The petrol and running cost of the car was £2,000 VAT inclusive.

  • Calculate the VAT payable for the quarter ended 31/03/2019.

Solution:

  • Input VAT that can be claimed in the quarter to 31/03/2019:

    Standard rated exp. and purchases: 1/6 * £30,000 =  £5,000
    Purchase of motor car:                                                       Nil
    Petrol and running cost paid for: 1/6 * £2,000 =           £333
    Total input VAT that can be claimed:                           £5,333

  • Output VAT payable in the quarter to 31/03/2019:

    Sales:  1/6 * £60, 000:                                                    £10,000
    Scale charge for petrol of car:  1/6 * £300 =                       £50
    Total output VAT Payable:                                            £10,050

  • Net output VAT Payable:                                                 £4,717