In Maddison and Ben Firth T/A Church Farm v HMRC [2022] TC08496, the First Tier Tribunal (FTT) dismissed the appellants' claim for input VAT for two luxury cars, a private number plate and pilates clothing on the basis that they were not allowable business expenditure for VAT purposes.

  • The appellants registered for VAT under the name of Church Farm, in December 2017. The trade was listed as "subcontracting glam/camping, weddings and events".
  • In October 2020, Maddison Firth (MF) wrote to HMRC to explain that the October 2020 VAT return for the business would include a claim for input tax on New cars. The email referenced HMRC guidance and included a copy of their Private Hire Operators Licence issued by the Council.
  • A follow-up email included correspondence from the business' accountant explaining that Input VAT would be blocked due to private usage unless the car was used mainly as a taxi. The HMRC replied confirming this and advising MF to consider the guidance carefully before making any claim.
  • The VAT return was submitted including a claim for Input VAT of £28,374 for the following:
    • The purchase of an Audi Q8.
    • The purchase of an Audi TT.
    • A personalised number plate (BS70 BEN) for a motorbike used for advertising the business.
    • Clothing purchased for use whilst MF trained as a pilates instructor.
  • The HMRC officer requested the insurance documents for the cars which showed that they were insured for 'Social, Domestic and Pleasure' (SDP) only, which HMRC argued showed that there must be some private use intended for the vehicles. MF explained that it was very difficult to obtain insurance without SDP but HMRC took the view that this was not enough to prove that the vehicles were only used for business purposes.
  • The input VAT claim was refused and the appellants' appealed to the FTT.
  • At the hearing, MF stated that there had never been any intention to use the cars for private hire and that they were only used for travel to and from business meetings or on the farm, as proven by their inclusion in the agricultural insurance policy the business had for all of the farm's vehicles. The FTT noted that Ben Firth had obtained a private hire operators licence in October 2020 but was unclear as to he had done this.

The FTT set out that it is the intention at the time of purchase that determines whether the vehicle is to be considered exclusively for business use. It concluded that there was not sufficient evidence to prove a business-only intention on  purchasing the vehicles. This was based on:

  • The SDP insurance.
  • MF's statement that there was never any intention to use the vehicles for private hire (one of the main exceptions to the VAT restriction for input VAT on vehicles).
  • The impracticality of using an Audi TT for private hire.

The FTT also found that:

  • As it did not refer to the business or its name in any way, the BS70 BEN number plate was not an allowable business expense.
  • Despite HMRC proposing a 50:50 allowance on the pilates clothing as it was also worn for work on the farm, the clothes were neither protective nor were they a uniform. The FTT held that a person should be responsible for their own clothing for work and no input VAT could be recovered.

All items for which input VAT was claimed were rejected for not being business expenditure and the appeal was dismissed.

The FTT noted that the appellants had taken advice from their accountant before making the claims, but did not follow it. On that basis the taxpayers were extremely lucky to avoid being charged tax penalties for negligence.

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? 

Clothing and work wear
Is tax relief available on clothing bought for work? When might clothing costs be disallowed? What needs to be considered?

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? 

Appeals: VAT
The process of making a VAT appeal largely follows that of direct taxes, however, there are some differences. How do I appeal an HMRC decision?  How do I appeal a penalty?  How can I request a Statutory Review? 

External link

Maddison and Ben Firth T/A Church Farm v HMRC [2022] TC08496

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