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Reclaiming VAT on cars and motoring expenses

Reclaiming VAT on cars and motoring expenses

Generally, you cannot reclaim VAT when you buy a car. There are some exceptions where you can reclaim the VAT, for example if the car will be used exclusively for business purposes such as a pool car.

If you lease a car exclusively for business purposes you can generally only reclaim 50 per cent of the VAT. There are some exceptions where you can reclaim all the VAT such as for taxis that are hired with a driver.

You can reclaim all of the VAT on repairs and maintenance of a vehicle as long as your business pays for these costs and the vehicle is used to some extent for business purposes.

You can generally recover the VAT on all other business motoring expenses such as fleet management and off-street car parking. Different rules apply for road fuel.

Find out more by reading this guide.

On this page:

Reclaiming VAT when you buy a car
Reclaiming VAT when you lease or hire a car
Reclaiming VAT on repairs and maintenance
Reclaiming VAT on other motoring expenses
Reclaiming VAT on road fuel
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Reclaiming VAT when you buy a car

Generally, you cannot reclaim the VAT when you buy a car supplied with fitted accessories such as sound systems. However, you may reclaim the VAT if you buy, import or otherwise acquire a car and of the following conditions are met:

The car will be used exclusively for business purposes, and not available for the private use of anyone, such as pool cars.
The car will be used as a taxi, driving instruction vehicle or a self-drive hire car.
The car is a stock-in-trade car and will be sold by the manufacturer or dealer within 12 months. Second hand cars are not included.

It is important to monitor your use of a car where you have reclaimed VAT. If you use the car for private purposes and the car no longer conforms to the above exceptions a 'taxable self supply' occurs. This means you must now account for and pay the VAT - output tax - on the current market value of the car or a similar car.

If you later sell a car where you reclaimed the VAT on the purchase price (perhaps it was part of your driving school), you must charge VAT on the full selling price. The car cannot be sold under the second-hand goods VAT scheme. If you did not reclaim the VAT on the original purchase price of the car, you do not have to charge any VAT on the resale as the sale will be exempt from VAT.

Find out about the second-hand goods scheme

When can input tax be recovered on car derived vans and combination vans?

You can usually reclaim VAT on a commercial vehicle. It is normally easy to tell the difference between a car and a commercial vehicle, but there are some vehicles where it is not so clear cut. These are car derived vans or combination vans.

Car derived vans

These are vehicles that are based on cars but are produced and sold as vans by the manufacturer or converted to a commercial vehicle by a vehicle converter. We'll consider these vehicles to be commercial if all these three conditions are met:

The alterations made by the manufacturer or converter meet the technical criteria specified in our guidance. If you're in any doubt, get written confirmation from your supplier. If you need more information about the guidance, contact us.
The adaptations give the vehicle the functionality of a commercial vehicle. Simply removing a back seat isn't enough.
The space that remains behind the front row of seats is highly unsuitable for carrying passengers.

Combination vans

These vehicles look like vans, but have seats for carrying passengers or are designed to have them fitted behind the front row of seats. We'll consider them to be commercial vehicles if either or both of these conditions are true:

they are vehicles with a payload of more than one tonne after the addition of the extra seats
the dedicated load area - that is, that load area which is completely unaffected by the additional seating - is larger than the passenger area, so as to make the carriage of goods the predominant use of the vehicle

We've produced a list of vehicles based on our guidance. However, model specifications do change, so this list may not be up to date. If in any doubt, contact us.

See our list of car-derived vans and combination vans

If you've claimed VAT in a previous VAT period for a vehicle you thought was a van but we consider it to be a car, you should make an adjustment for the overclaim. Of course, if you've failed to reclaim VAT for a vehicle you thought was a car but we consider it to be a van, you'll probably want to make an adjustment to claim back the VAT 'but there are time limits within which you can claim.

Find out how to make adjustments to earlier VAT returns

More about retrospective claims for VAT overdeclared by motor retailers

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Reclaiming VAT when you lease or hire a car

If you lease a car exclusively for business purposes you can generally only reclaim 50 per cent of the VAT. HMRC assumes that there will be some private use of the vehicle. This is called the '50 per cent block'.

However, there are exceptions where the '50 per cent block' does not apply. All of the VAT can be reclaimed if the car is defined as a 'qualifying car'. Qualifying cars include:

taxis that are hired with a driver
cars that are used to provide driving instruction

If you hire a car exclusively for business purposes for ten days or fewer, and it is not simply replacing another car that is off the road, you may reclaim all of the VAT.

Reclaiming VAT on repairs and maintenance

You can reclaim the VAT on repairs and maintenance of a vehicle as long as your business pays for these costs and the vehicle is used to some extent for business purposes. It does not matter if you use your vehicle partly for private use, or if you have chosen not to reclaim the VAT on road fuel.

However, you cannot reclaim any VAT on repairs or maintenance if you are a partner or sole proprietor of a business and use the vehicle solely for your own private motoring.

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Reclaiming VAT on other motoring expenses

You can generally recover the VAT on all other business motoring expenses such as fleet management or off-street car parking.

If you use your car for both business and private motoring, the amount of VAT you can reclaim is limited to the proportion of the car used for business.

Get information on apportioning VAT in a mixed business-private use

Car parking

Some car parking includes VAT at the standard rate such as multi-story car parks. In contrast, on-street parking meters and pay-and-display car parking charges are not subject to VAT.

Accessories

If your vehicle was supplied with fitted accessories, the VAT on those items cannot be recovered. If you later buy additional accessories for your car you cannot reclaim any VAT unless you can show the accessory has a business use.

Get information on the different VAT rates

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Reclaiming VAT on road fuel

You have four options for reclaiming VAT on fuel. You can:

Reclaim all of the VAT. You must use the fuel only for business purposes.
Reclaim all of the VAT and pay VAT on the proportion of fuel not used for business. The fuel can be used for business and non-business purposes. You need to apply the appropriate scale charge - a way of accounting for paying VAT on fuel bought by a business, but then used for private motoring.
Reclaim the business proportion of the VAT. You must keep detailed records of business and private mileage.
Not reclaim any VAT. This can be useful if your mileage is low and/or you use the fuel for both business and non-business. As you are not claiming any VAT you do not need to keep detailed mileage records.