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When you buy a car you generally can't reclaim the VAT. There are some exceptions - for example, when the car is used mainly as one of the following:
If you lease a car for business purposes you'll normally be able to reclaim 50 per cent of the VAT you pay. But you can reclaim 100 per cent of the VAT if the car is used as one of the following:
You can reclaim all the VAT charged on vehicle repairs and maintenance so long as:
You can generally recover the VAT on all other business motoring expenses like fleet management or off-street parking. There are special rules for reclaiming VAT on road fuel used for business purposes.
This guide tells you more about reclaiming VAT on cars and motoring expenses.
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Generally you can't reclaim the VAT when you buy, import, or in some other way acquire a car. But there are some exceptions to this. You can reclaim all of the VAT if you meet one of these conditions:
You might buy a used car from a dealer who sells it to you under the Margin Scheme for second-hand vehicles. The invoice you get won't show any VAT, so you can't reclaim any, no matter what you intend to use the car for.
If your invoice does show VAT then the car won't have been sold under the Margin Scheme. Unless the car meets one of the above conditions for reclaiming VAT, you won't be able to recover the VAT included on the invoice.
You'll normally be able to reclaim the VAT on a commercial vehicle like a panel van or truck that you buy for use in your business, so long as you follow the normal rules for reclaiming VAT.
If you buy a car and you can't reclaim the VAT on it, you can't reclaim the VAT on any accessories that are fitted to it at the time of purchase either. This is because the accessories are considered to be part of a single supply of the car - for which the VAT can't be reclaimed.
If you later buy an accessory for a car that's owned by, or used in the business, you can only reclaim the VAT if the accessory has a business use.
If you were able to reclaim the VAT when you bought a car it's important to monitor how the vehicle is used. You'll have to account for and pay VAT - output tax - on the 'current value' of the car if it's no longer:
The current value is the current purchase price of an identical or similar model.
If you lease a car for business use you'll normally be able to reclaim only 50 per cent of the VAT. This is because HM Revenue & Customs (HMRC) considers that there'll be some private use of the vehicle.
But sometimes this 50 per cent limit doesn't apply. You can reclaim all the VAT if the leased car is any of these:
If you hire a car just to replace a company car that's off the road, then you'll only be able to reclaim 50 per cent of the VAT on the hire charge.
But if you hire a car for another reason - perhaps you don't have a company car - then you can reclaim all the VAT so long as both of the following apply:
You'll need to consider the VAT position if you:
You might decide to sell a car for which you were able to reclaim VAT - perhaps a pool car or a driving school vehicle. You'll have to charge VAT on the full selling price of the car and issue a VAT invoice to a VAT-registered buyer if they ask for one. You can't sell the car under the Margin Scheme for second-hand vehicles.
If you couldn't reclaim the VAT on the original purchase price of a car you bought new, you won't have to charge any VAT when you sell it - not even on your margin. This is because the sale of the car is exempt for VAT purposes.
If you bought a used car under the Margin Scheme for second-hand vehicles - this will be clearly indicated on the invoice - and you sell it for less than you purchased it for, no VAT is due. If you sell it for a profit, you can either charge VAT on the full sale price, or you can use the Margin Scheme and charge VAT only on the excess of the sale price over your purchase price.
If you end a car leasing agreement early, you'll generally have to make a termination payment to your leasing company. You may also be entitled to a rental rebate. The leasing company can choose to treat both the termination payment and the rebate as either:
If they choose to treat them as taxable, they'll generally set the amount of the rental rebate due to you against the amount of the termination payment and send you a VAT invoice for the difference. You can reclaim the full amount of the VAT even if you were only reclaiming 50 per cent of the leasing charges. This is because the termination payment isn't a rental charge.
If it turns out that the rental rebate due to you is more than the termination payment, the leasing company will send you a VAT credit note for the difference. If you were only getting back 50 per cent of the VAT on the leasing charges you can put through to your VAT account only 50 per cent of the VAT shown on the credit note.
You can reclaim all the VAT you're charged on repairs and maintenance to a vehicle so long as:
It doesn't matter if the car is used for private motoring or if you've decided not to reclaim the VAT on road fuel for business travel.
But you can't reclaim the VAT on vehicle repairs and maintenance if you use the vehicle only for your own private motoring.
You can generally reclaim the VAT you pay on all other business motoring expenses - like fleet management charges and off-street parking.
Remember that if you use your car for both business and private motoring you'll only be able to reclaim the VAT on the proportion that relates to business use.
Some car parking charges, for example in multi-storey car parks, include VAT at the standard rate. Other car parks may or may not include VAT - you'll have to check with the provider, or the receipt may indicate if VAT was charged - but there's no VAT on on-street parking meter charges.
If your business pays for road fuel, you can deal with the VAT charged on the fuel in one of four ways:
If you're on the Flat Rate Scheme, the VAT on your fuel usage is already taken into account in the flat rate percentage for your sector. You don't claim back any VAT on fuel, and you don't use the fuel scale charge to pay VAT on fuel used for private motoring.
If you have an insurance claim that involves goods or services that are liable for VAT, you'll normally be invoiced directly for the VAT element if you're VAT-registered. For example, a garage that carries out repair work on your car will invoice the insurance company for the cost of the work and parts excluding VAT. They'll invoice you separately for the VAT.
You can reclaim all the VAT on this invoice so long as the car is used for business purposes to some extent. This is because the work that's been done is part of the cost of running and maintaining your vehicle.
As part of settling your claim, your insurance company might supply you with other items apart from the repair work. For example, they may replace an accessory that was stolen or damaged. In some circumstances they might give you an invoice for the VAT on the item. You can only reclaim the VAT on the replacement if you were able to reclaim the VAT on the original purchase.