VAT on Private Use and Self-Supply

When you're VAT-registered and use business goods or services for private purposes, or supply them to yourself, you may need to account for VAT even though no sale has taken place. This includes taking items from stock for personal use, lending business equipment to employees, or using business-paid services privately. Understanding these rules helps you stay compliant and avoid underpaying VAT to HMRC.

When private use creates a VAT charge

If your VAT-registered business buys and sells goods, and you take something from stock for your own private use, you must account for VAT on that supply. The same applies if you lend business equipment like tools or machinery to an employee.

When goods belonging to your business are used privately, you're making a VAT taxable supply and must account for VAT at the appropriate rate. How you account for the VAT depends on whether you've given the goods away permanently or just lent them temporarily, and whether you received anything in return (known as a 'consideration').

Taking goods permanently for private use

You must account for VAT on goods taken out of your business permanently for private use. These goods might include:

• Items from stock that you would normally sell to customers
• Goods that your business makes or produces
• Materials used to make things
• Business supplies like office supplies and protective clothing
• Business assets like computers, tools and machinery

Private use includes use by you or someone else you give the goods to. The way you account for VAT depends on whether you receive a consideration in return.

Business gifts

If you've given away an asset as a business gift, there's no VAT due if the total cost of all gifts made to the same person in the same year is no more than £50.

Temporary private use of business assets

If you make items owned by your business available for temporary private use — either by using them personally or by lending them to someone else — you're making a VAT taxable supply of services.

If you let someone use a business asset and receive nothing in return, VAT is due on the cost to your business of lending it. The same applies if you use the item yourself.

To work out the cost of the supply:

1. Take the amount that the item reduces in value during the year (depreciation)

2. Work out how much of the year the item is used privately

3. Apply that proportion to the yearly depreciation figure

Private use of motor fuel

You and your employees might use either your own vehicles or those owned by the business for a mix of business and private motoring. If your business pays for the fuel, you can reclaim all of the VAT you pay on it, provided you use the appropriate 'fuel scale charge' to account for output tax on the fuel used privately. Alternatively, you could reclaim just the business proportion of the VAT, or not reclaim any VAT at all.

You may also be able to reclaim all of the VAT on repairs, maintenance and certain other motoring costs your business pays for, as long as the vehicle is at least partly used for business purposes.

Private use of services

If you purchase services for your business but then put them to private or non-business use — including making private use yourself or making the services available to others for their private use — your business may be making a VAT taxable supply of services on which you need to account for VAT.

VAT is due on the cost to your business of making the services available for private use. You can use various methods to work out the cost, as long as you come up with a fair and reasonable figure. For example, you can:

1. Think of the service as a 'business asset' and work out how much it's worth

2. Work out how much the asset would reduce in value during the year (depreciation)

3. Work out how much of the year the asset is used privately

4. Apply that proportion to the yearly depreciation figure

This is only a suggested method. If you want to use a different approach, contact the HMRC VAT Helpline to discuss it.

Continuous services with mixed use

If your business buys continuous services that are used privately, such as your telephone, you can only reclaim the VAT on the business use. This is called 'apportionment'.

For example, if your business use comes to 60% of total usage, you would only be able to reclaim VAT on 60% of the cost.

What is a consideration?

A consideration is a payment, but it doesn't have to be money. It could be many other things, such as an agreement to do something in return for the goods, or in return for the use of the goods.

If you receive a consideration: If the consideration you receive is money, the amount is VAT-inclusive and you need to calculate the VAT due at the correct rate for the supplies you've made. If what you've supplied is zero-rated, there's no VAT due.

If the consideration isn't money, or is part money and part something else (such as goods and services), you need to calculate the value of the non-monetary part. The total amount is VAT-inclusive and you need to calculate the VAT due according to the correct rate.

If you don't receive any consideration: If you give something away and receive nothing in return, VAT is due on the value of what you've supplied. This is the amount that would be payable to purchase the same goods — including age and condition — at the time of your supply.

Self-supply of goods in your own business

If your business produces goods, or if it buys and sells them, you might use these in the business instead of selling them on. There's not usually any VAT due on goods you use like this because you haven't made a VAT taxable supply. But there are a few exceptions, known as 'taxable self-supplies'.

Self-supply of cars: If you're a motor manufacturer or dealer and you take a car from your stock to use in your own business, this is a taxable self-supply. You'll need to account for VAT on the supply.

Other taxable self-supplies include:

• Certain non-domestic buildings that you use your own labour to construct or extend
• Cars that you claimed input tax for because they were to be used as a taxi, self-drive hire car or driving school car, but then put to some other use

You must make a note in your VAT records of goods you use within the business.

Buying for the business then selling on

If you buy something for use in the business but later sell it to a customer, VAT is due on the amount you sell it for. This includes selling it to one of your employees.

Sources

• Private use and self-supply of goods and services for VAT
• Fuel scale charge
• VAT: motor dealers

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.