Determining if assets or property are used for business or personal purposes can significantly affect taxation levels. HM Revenue and Customs (HMRC) is often sceptical of claims where assets appear capable of private use, from cars to horses, and even motorbikes. The consequences of getting it wrong can be costly. So, let’s clarify when an asset is considered business or personal.
The Issue: Business vs Personal Use
HMRC regularly challenges claims where assets might be enjoyed privately. The concern is simple: if an asset is really for personal use, then claiming tax reliefs such as income tax, input VAT, capital allowances, or reduced stamp duty land tax (SDLT) would be inappropriate.
That makes it essential for taxpayers to clearly evidence commercial use. Where HMRC can show an absence of robust business records, it may impose assessments, penalties, or even personal liability notices on directors.
Assets frequently caught in this area include horses, bikes and automobiles!
Let’s bring in some recent case law to demonstrate HMRC’s thinking
The case of Toye v HMRC involved a locksmith company that purchased three motorbikes. The question was whether these motorbikes were genuinely used for business purposes or simply for personal enjoyment.
Black Wolf Ltd, operated by Mr. Toye, claimed input VAT on the motorbikes. However, HMRC argued that the bikes were private vehicles. Additionally, HMRC imposed a deliberate penalty and made Mr. Toye personally liable after the company ceased trading.
At the tribunal, Mr Toye explained that the bikes were adapted with toolboxes so locksmiths could respond quickly to emergency callouts. The tribunal accepted this evidence and found that the VAT claim was valid. HMRC’s penalties were overturned.
The case makes three key points:
- If assets are adapted and clearly used for business, that evidence is vital.
- Penalties depend on what the director believed at the time the return was filed, not what they might admit later.
- Even when a company closes, HMRC can still pursue directors personally if they think mistakes were deliberate.
In short, the case highlights the importance of maintaining strong evidence when claiming tax relief on assets that HMRC may assume are for private use.
Holding v HMRC was a dispute over stamp duty land tax (SDLT).
In 2018, Mr and Mrs Holding bought a farmhouse with gardens, a swimming pool, outbuildings, stables, paddocks, and 41 acres of land. HMRC determined that the entire property was residential, which resulted in SDLT of more than £600,000. The Holdings argued that around 24 acres of fields were non-residential, which would have reduced their SDLT bill to £219,500.
The First-tier Tribunal rejected their claim. It held that the fields provided privacy and amenity for the farmhouse, rather than being used for a commercial purpose. While there were equestrian facilities on site, there was no evidence that they were operated as a business. No evidence was produced of grazing leases, third-party income, or a history of farming activity. Without this, the land would have been deemed part of the residential property.
This case highlights HMRC’s approach to SDLT and mixed use.
- Why the case was lost
- No evidence of historic or ongoing commercial use.
- No proof of third-party income.
- Tribunal concluded the land enhanced the farmhouse, regardless of size.
- Lessons for taxpayers
To claim mixed-use treatment successfully, taxpayers should:
- Provide clear, documented evidence of business activity before or at completion.
- Consider letting surplus fields or paddocks to third parties to show commercial use.
- Work with vendors ahead of time so that evidence of mixed use is available during the sale.
Planning and strategy are vital. Without evidence, HMRC will almost always default to the presumption of private enjoyment.
Reminder for use of your personal cars for the Self-Employed – The Everyday Asset
Unlike yachts and horses, motorbikes or cars are assets we all recognise and are often used in business. For sole traders and the self-employed, managing car-related costs means carefully distinguishing between personal and business use.
- Allowable Expenses
If you are self-employed, you can claim car-related costs such as:
- Fuel
- Insurance
- Repairs and servicing
- Maintenance
However, you must disallow a proportion for private use.
- Working Out Private vs Business Use
The most reliable method is to keep a log of your business miles. For example:
- In January, you drive 200 miles in total.
- Of these, 120 miles are for business.
- That gives you 60% business use for the month.
Repeat this consistently, and at year-end, you have a solid record of business mileage. This log provides strong evidence if HMRC ever reviews your return.
Many people only estimate business use annually or every few years, but to withstand HMRC scrutiny, it is advisable to update your records whenever your circumstances change. For example, if your teenager goes to university and your private mileage increases, your business-use percentage must be adjusted accordingly. Record this to make it a stronger case in case you are asked.
The situation is a bit different when buying a car via your own company. Any private use is adjusted by taxing both employees and employers for personal income tax and national insurance.
7 Key Takeaways when there is mixed use
- The presumption is often private enjoyment unless proven otherwise.
- Evidence is everything – Keep robust, contemporaneous documentation showing how assets are used in the business.
- Adaptations help – Modifications to assets (e.g. tool-fitted motorbikes) support the business-use argument.
- Plan ahead – Consider HMRC’s likely view when structuring asset purchases or property acquisitions.
- Mileage logs matter – For cars, keeping a monthly log of business vs private miles is the safest approach.
- Communication matters – Emails and correspondence with HMRC can be decisive in how your intentions are interpreted.
- Personal liability risk – Directors cannot assume they are protected by a corporate veil if HMRC believes tax submissions were deliberately incorrect.
Final Thoughts
Whether it is motorbikes in a locksmith business, horses and equestrian property, or a car in everyday self-employment, HMRC’s presumption is that assets are private unless proven otherwise.
With careful planning, strategic documentation, and an understanding of HMRC’s stance, taxpayers can protect themselves against unnecessary disputes and the financial and personal consequences that may result. We always say to the client don’t approach us once you’ve decided what to do. Buy an expensive car, hoping to receive significant tax relief. The time to talk is before you buy that car!
The time to get in touch with us when that thought first comes to your head because very often the tax relief is not always what you might think or want.
Contact your usual manager now if you’re considering purchasing an asset that may bring personal enjoyment. It’s essential to get things right from the beginning.
Here’s more on how we can help you feel calm and confident about your taxes.