VAT & Intended Use

The First-tier Tribunal released its decision in Luxurico Ltd last month, allowing a luxury vehicle hire business to recover almost £500k of input tax on the importation and acquisition of a hypercar.
 
The car was acquired in November 2020 as a flagship vehicle. Input tax on the purchase of a motor car is ordinarily blocked, but not where the business intends, at the time it incurs the tax, to use the vehicle primarily for hire, either self drive or with a driver. HMRC refused the claim, saying the car had been bought for the personal enjoyment of those behind the business.
 
That refusal rested almost entirely on what happened afterwards: few completed hires in 2020 and 2021, no mileage logs before March 2022, gaps in the hire insurance, and social media content presenting the car as an object of personal enthusiasm.
 
The Tribunal accepted much of that criticism and described the mileage evidence as unsatisfactory. It allowed the appeal nonetheless, because those matters went to a different question from the one the legislation asks. Entitlement is fixed by the intended use at the point the tax is incurred, assessed objectively, not by a retrospective audit of later use. 
 
The indicators at acquisition pointed one way: an established hire business for which prestige vehicles were ordinary stock, commercial interest in the car before it arrived, hire insurance arranged at once, and marketing alongside the rest of the fleet. Mechanical problems, Covid restrictions affecting the weddings and events market, and a collision in June 2021 explained the low level of hire activity. 
 
Enjoyment of the car was not inconsistent with a commercial purpose; the question was whether private use was the dominant intended use, and it was not.
 
The practical point is the distinction between evidence of intention and evidence of use, readily conflated in correspondence with HMRC. Where a client buys a qualifying vehicle, the acquisition file needs to stand on its own - hire insurance from the outset, marketing material, enquiries and bookings, and a contemporaneous note of the reasoning. Luxurico's later record keeping was poor and survived only because the issue was intention. Against a different assessment it would have been fatal.
 
It will be interesting to see if HMRC appeal.