VAT on goods and services for personal use

Andrew Needham looks at VAT recovery on goods and services that have some personal use and when output VAT is due on that private use. VAT is generally not reclaimable on goods or services intended for personal use. If a business purchases items or services and uses them privately, it is considered a taxable self- supply, requiring the business to account for VAT on that private usage.

Private use of business assets, such as phones or vehicles, normally requires accounting for output VAT unless the input tax is apportioned to take account of any private use.

Key considerations for personal use VAT are as follows:
• Non-deductible input tax – a business cannot reclaim VAT on goods or services intended solely for personal use.
• Deemed supplies – when business assets (e.g., machinery, stock) are used for personal reasons, a business must account for VAT on that portion, often referred to as ‘deemed supplies’.
• Self-supply – if a business owner takes goods from stock for personal use, they must charge themselves VAT based on the cost of the goods.
• Partial private use – if a business asset is used for both business and personal purposes, the business must split the VAT, only reclaiming the portion used for business purposes.
• Valuation – VAT on private use is usually calculated based on the cost to the business of providing those services.

Using goods privately

Businesses often supply their own goods and services for private use. The business may have to account for VAT on them if they are VAT-registered and the business:
• buys and sells goods, and takes something from stock for private use; or
• uses equipment like tools and machinery or lends something to an employee.

If goods belonging to the business are used privately, it is making a taxable supply and will have to account for VAT at the appropriate rate. The way the business accounts for the VAT depends on:
• whether it has given the goods away permanently, or just lent them; and
• whether or not it received a ‘consideration’.

Some things, like motor fuel, have their own special rules for dealing with the VAT when used privately.

Goods supplied for permanent private use

VAT must be accounted for 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 that your business uses to make things;
• business supplies, like office supplies and protective clothing that you keep in your stores; and
• business assets, like computers, tools and machinery that your business uses.

Private use includes use by you, or someone else you give the goods to. The way you should account for the VAT depends on whether or not you receive a consideration in return for the goods.

Goods supplied for temporary private use

If a business makes items owned by the business available for temporary private use, either by using them personally or by lending them to someone else, they are making a taxable supply of services. If the business lets someone use a business asset and receives nothing in return, VAT is due on the cost to the business of lending it. This will be the same if you use the item yourself. To work out the cost of the supply, the business will need to:
• take the amount that the item reduces in value during the year (depreciation);
• work out how much of the year the item is used privately; and
• apply that figure to the yearly depreciation figure.

Practical tip

If a business owner uses goods or services for private use, they will need to account for VAT on the private use as the business is considered to be supplying the goods or services either temporarily or permanently.

Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.