Borrowing the Company Van? Here’s What It Means for VAT
You’re planning a home renovation, and rather than hire a van or buy new equipment, you consider using the company’s van or tools that have been sitting idle. Sounds practical, right?
But if your company is VAT-registered, this decision may not be as simple as borrowing the van for a weekend or two. When business assets are used for private purposes — even by the company owner — it triggers VAT implications that must be handled correctly to avoid problems down the line.
In this article, we explain how self-supply VAT works, how to calculate it, and what to do if you’ve already reclaimed VAT on equipment that’s now going to be used privately.
What is “Self-Supply” for VAT?
Under VAT rules, a self-supply occurs when a business makes supplies to itself — including to its directors or employees — for non-business purposes. This includes the private use of business assets, such as a van, tools, or equipment.
In VAT terms, this use is considered a “deemed supply,” and you may need to repay a portion of the VAT originally reclaimed.
Trap: Even if you are the company director or owner, and the asset belongs to your business, using it privately is still a self-supply — and therefore subject to VAT.
What HMRC Expects
VAT-registered businesses are entitled to reclaim VAT on the purchase of goods and services used for their business. However, if those goods are later used for private or non-business purposes, you are required to repay VAT in proportion to the private use.
Two ways to handle VAT on mixed-use assets:
-
Reclaim 100% of the VAT up front, then repay VAT periodically based on actual private use.
-
Reclaim only the proportion of VAT relating to expected business use at the time of purchase.
Both are acceptable, but the second is often simpler and avoids cash flow complications later on.
But What If the Asset Has Already Been Purchased?
Let’s say your company bought a van four years ago for £15,000 + VAT (£18,000 total) and reclaimed the full £3,000 VAT at that time. You’ve been using it exclusively for business until now, but with house renovations beginning, you plan to use it every Saturday.
The good news is you’re not too late to account for VAT correctly.
You can use the Lennartz principle, which allows businesses to repay VAT on the actual private use, even years after the asset was purchased.
So, even if you claimed the full VAT back four years ago, you can now begin accounting for private use VAT going forward, without needing to retrospectively adjust the original claim.
How to Calculate the Self-Supply VAT
Here’s the formula:
(A / B) × (C × U%)
Where:
- A = Number of months in the VAT return period (usually 3 months)
- B = Expected life of the asset (in months, usually 60)
- C = Net cost of the asset (e.g., £15,000 for the van)
- U% = Percentage of private use during the VAT period
Example:
You plan to use the van every Saturday. Business use is Monday to Friday, so that’s:
- 5 days business / 7 total days = 71% business, 29% private use
- But you expect private use only on Saturdays, so U% = 17% (1/6 of a week)
Calculation:
- A = 3 (quarterly VAT return)
- B = 60
- C = £15,000
- U = 17%
(3 / 60) × (£15,000 × 17%) = £127.50 VAT
At 20% VAT, this means you owe £25.50 in VAT for the quarter for the private use.
You continue to adjust this amount for each VAT return based on how often the asset is used privately.
How Long Do You Need to Make Adjustments?
For VAT purposes, HMRC considers the useful life of most equipment to be five years (60 months). That means you’ll need to account for private use each VAT period up to five years from when you first start using the asset privately.
After that, you’ve “paid your dues” — even if you continue using it personally.
Tip: If your private use increases or decreases during the year, the proportion should be adjusted accordingly in your return. You don’t need a timesheet — just a reasonable estimate based on days or hours used.
What If You Plan for Private Use at Purchase?
This is where things are easier.
If you know at the time of purchase that you’ll use an asset for personal reasons (e.g., 20% private, 80% business), you can simply:
- Only reclaim 80% of the VAT at the time of purchase
- Avoid having to make quarterly adjustments going forward
It’s a cleaner method and avoids future admin — but it only works if you anticipate the private use from the outset.
So, Should You Repay VAT?
Yes — if you use the company van (or any other company-owned asset) for personal reasons, you are required to account for VAT on that private use.
Failing to do so could raise a flag with HMRC, especially during an inspection, and could result in interest or penalties on underpaid VAT.
However, the good news is that:
- You don’t need to repay the full VAT upfront
- You don’t need to track time to the minute
- You only need to apply a fair and reasonable method of calculation
If you haven’t planned for private use at purchase, use the Lennartz method for future periods. And if you’re buying new equipment you know you’ll use personally, consider limiting the initial VAT reclaim instead.
Final Thoughts: VAT Rules Apply, Even for Directors
Borrowing the company van for your own project might feel like no big deal — especially if you’re the one who bought and paid for it through the business. But in VAT law, the rules still apply.
Private use is treated as a supply. That means it comes with a VAT obligation — but if handled properly, it’s manageable and relatively low cost.
At Merranti, we help directors and business owners ensure that all VAT use — commercial and private — is correctly accounted for. We can guide you on whether to reclaim full or partial VAT. How to manage self-supply obligations, and how to ensure compliance with HMRC without overpaying.
Thinking of using business assets personally? Get clarity on your VAT position first — we’re here to help.
