In RPD Building Limited v HMRC [2018] TC06740, the First-Tier Tribunal (FTT) denied VAT recovery on costs related to upgrading a car to a high performance racing car.

  • RPD are specialist construction managers dealing with large scale projects.
  • RPD Registered for VAT and used the Flat Rate Scheme.
  • RPD claimed back VAT on the cost of a trailer and supplies related to the rebuilding of a racing car.
  • Before the hearing, the trailer was dealt with under Alternative Dispute Resolution (ADR).
  • HMRC refused the claim on the basis that they were not Capital Expenditure Goods (CEGs):
    • The labour supplied is a supply of services and CEGs are limited to goods.
    • Consumables such as fuel, oil, etc. that were acquired are not capital items.
    • Parts fitted to the cars are not capital items because they are all replacements for something that was already there and that the asset in question is the whole car not the individual constituent parts.
    • The car itself is subject to the input VAT blocker.

RPD appealed the decision to deny recovery of VAT on the costs related to cars claiming the cars were used as promotional tools for the business:

  • The car would be shown and raced at racing meetings.
  • The Director would be standing in the ‘paddock’ at racing meetings and speaking to people who may turn into potential customers.
  • The Director would use social media to promote his racing activities which in turn would have a knock on promotional effect on RPD.

The FTT concluded that relief was not due:

  • Consumable items could not benefit from relief as they are not capital.
  • Invoices of a value of less than £2,000 (including VAT) cannot qualify for relief.
  • The rebuilding of car engines and associated labour exceeded £2,000:
    • The costs were part of the process of rebuilding the engines to transform the cars into high performance racing cars.
    • They were consumed in the construction of the car and were therefore part of the car not individual items of capital expenditure.
    • The asset was therefore a car and could not be a CEG, they are specifically excluded.
  • Even if the costs could qualify for VAT relief, i.e. it was a CEG, VAT relief would still be denied, due to the Motor vehicle VAT blocker would apply.

The appeal was dismissed.

The FTT did confirm its view that the requirement that an output have a direct and immediate link to a taxable supply in order to recover the VAT, is overridden by the FRS rules on CEG. These do not require a direct and immediate link as all CEGs are treated as used exclusively in making taxable supplies under the FRS rules.


Flat rate scheme

Car or van for VAT?

External link RPD Building Limited v HMRC [2018] TC06740