In Three Shires Trailers Limited v HMRC  TC09044, the First Tier Tribunal (FTT) found that input VAT was recoverable on the purchase of two Land Rover Discovery vehicles used solely for business purposes. The subsequent conversion of the vehicles into cars, by adding rear seats, did not prevent VAT recovery, or result in an output VAT charge.
- Three Shires Trailers Limited (TSTL) bought and resold trailers.
- In August 2011, TSTL purchased two Land Rover Discovery vehicles to transport trailers to customers, collect trailers from suppliers, and allow staff to attend trade fairs.
- A few days after the vehicles were purchased, three fold-up seats with seat belts were installed behind the driver and passenger seats. The side and back windows, which had been blacked out, were also cleared.
- Six to eight TSTL staff members would typically attend trade shows. The extra seats meant that TSTL could reduce the number of vehicles needed in the business.
- The vehicles were intended for exclusive business use, and in practice were only used for business purposes.
- TSTL sought Repayment of £37,500 of input VAT. This triggered HMRC to open an enquiry.
- HMRC issued a decision notice in December 2021 which disallowed recovery of the input VAT relating to the vehicles on the basis that they had been converted from Commercial vehicles into cars, on which VAT was not recoverable.
- Following a Statutory review, HMRC cancelled the 2021 decision notice. A new decision notice was issued in March 2022, which:
- Allowed the initial input VAT recovery, as the vehicles were commercial when purchased.
- Charged output VAT on the conversion of the vehicles into cars as a self-supply under Article 5 of the Value Added Tax (Cars) Order 1992.
- TSTL Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- When the vehicles were acquired, they were commercial vehicles.
- TSTL was entitled to recover the input VAT charged.
- After purchase, the vehicles were converted into motor cars.
- A commercial vehicle becomes a motor car if seats are fitted behind the driver’s seat and/or if there are clear side windows.
- Although the seats fitted to the Land Rovers were described as temporary, and folded up when not in use, they still amounted to ‘roofed accommodation to the rear of the driver’s seat’.
- In addition, the side and rear windows which had been blacked out were cleared.
- The vehicles were ‘qualifying motor cars’ for the purposes of Article 7 of the Value Added Tax (Cars) Order 1992.
- Article 7 blocks the recovery of input VAT on the supply of motor cars, unless the motor car is a ‘qualifying motor car’ and other conditions are met.
- TSTL’s Land Rovers were qualifying motor cars as they had never been subject to an input VAT block and were supplied to a taxable person who intended to use them exclusively for business purposes.
- As the vehicles were 'qualifying motor cars' for the purposes of Article 7, no self-supply under Article 5 arose.
- Article 5 results in a self-supply where a motor car is used in such a way that, had it been so used when originally supplied, the input VAT on it would have been disallowed.
- As the vehicles were ‘qualifying motor cars’ for the purposes of Article 7, had they been acquired in their converted state, no input VAT block would have applied to their purchase. It followed that no self-supply under Article 5 arose: no output VAT was chargeable on the conversion of the vehicles into cars.
The appeal was allowed.
Useful guides on this topic
Cars & Vans: VAT
What is a car for VAT? What is a van for VAT? What VAT can be recovered on a car that is bought? Leased? What about fuel? Or mileage reimbursements?
Fuel scale charges (VAT)
What is the VAT fuel scale charge? What alternatives are there to the VAT fuel scale charge? Does the VAT fuel scale charge apply to vans?
Input VAT: What constitutes a valid claim (& VAT invoice)?
What is Input VAT? Who can claim it? What is needed for a valid claim? What needs to be included on a VAT invoice and can you make a claim without one?