You’ve purchased a pricey personalised number plate which included VAT. A business associate has told you that because the registration number has a connection with the business you can reclaim the VAT. Is he correct or will HMRC block it?
VAT claim allowed
Unlike VAT paid on the purchase of cars, there’s no block on reclaiming VAT for personal registration numbers. However, to do so, it must be incurred on a cost which is used for business purposes and linked to making VATable sales.
Trap. HMRC takes the view that private motive and enjoyment prohibits any VAT reclaim, particularly for luxury or superfluous items.
A business purpose?
There’s no statutory definition of “business purpose” so the meaning must come from court decisions. These say that business purposes are something more than just being commercially beneficial. In fact, there must be a clear connection, i.e. a direct and immediate link between the trading supplies made (the core activity) and the expenditure.Tip. Standard registration numbers give away the age of a vehicle. Using a personalised registration can to a degree disguise this and give the appearance that your business is doing well. This can be important for promoting your business.
Direct link to the business
The most effective argument to justify reclaiming VAT is where the registration number can be seen to advertise your business. The number must be readily identifiable to the man in the street as associated with your business’s trading name.Tip. Keep a record of the reasons that support your decision to purchase the number. There are a few court rulings that can help you in deciding what reasons to cite if challenged by HMRC (seeThe next step).
Tip. To reclaim the VAT your business must own the rights to the registration. Therefore, it should appear in its accounts and other records as a business asset. If you paid for it personally, the business should reimburse you.
Helpful court rulings
In 1985, BJ Kershaw Transport Ltd, a company named after its director, lost its case as the number plate “BK4” was not sufficiently relatable to the name of the company. In 2005, Mr Hooper purchased the car registration “HO O2 PER” in order to publicise his eatery which was known locally as “Hooper’s” even though its real name was “The Windmill”. As the establishment was a couple of miles from any main road, this mobile form of advertising was deemed plausible by the Tribunal. In a 2022 case involving Ben Firth, who traded as Church Farm, the First-tier Tribunal decided that “BS70BEN”, while referencing his name, didn’t have any obvious link with the trading name.
VAT 4U
Determining the true purpose behind acquiring an item which could also have personal benefit comes down to a subjective interpretation of the facts. Remember that at a tribunal the taxpayer must show that HMRC acted unreasonably when denying the input tax deduction – a hard nut to crack.Tip.Be ready with your convincing arguments in the event of an HMRC enquiry.
VAT paid on the purchase of a personalised vehicle registration can be reclaimed if it isn’t bought for reasons of private indulgence, and it clearly promotes the name of your business. HMRC considers each case on its merits, so keep a record of why you think a registration promotes your business in case of a challenge.
The next step
VIT64680 – Legal history
VIT54500 – Motoring expenses
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.