Frequently asked questions on VAT motoring expenses
Q. Can I reclaim VAT on the purchase of a car for the business?
A. Yes, but you must hold evidence the car is used exclusively for a business purpose. The reason for this evidence is because HMRC states that VAT cannot be reclaimed on the purchase of a car if it is “available for private use.”
Normally, businesses are only allowed recovery on a company car if it remains on business premises overnight and is not allocated to an individual.
VAT may also be reclaimed on cars primarily used as taxis, driving instruction and self-drive hire.
However, VAT may be recovered in full on a commercial vehicle if the criteria is met.
Q. My business owns a small van that a member of staff takes home because he is on call and may need it if he is called out. Is this a qualifying vehicle?
A. The input tax restriction for qualifying vehicles only refers to cars.
VAT may be recovered on vans bought for use by a business subject to the normal VAT rules. If a member of staff needs to take a van home because he is on call, this is business use and will not restrict the recovery of VAT.
Q. If the invoice from the dealer shows VAT but the car is used for business and private, can VAT still be claimed?
A. No. VAT cannot be claimed on a car unless it is a qualifying vehicle such as a taxi or car for driving instruction intended mainly for business use or if it is a car used exclusively for business purposes with no private use allowed.
Q. Could you clarify when you charge vat on the sale of a company car?
A. VAT is due on the full selling price of a company car on which there was an entitlement to claim input tax.
If VAT was not charged when the vehicle was purchased and the business chooses to use the Second Hand Margin Scheme, VAT is only due on any profit margin made on the sale. If no profit is made, there is no VAT due.
If the business does not or cannot use the Margin Scheme, VAT is due on the full selling price.
If the business could not recover the VAT charged to it when it purchased the car, a subsequent sale of the car is exempt from VAT and any related sale costs may not be recoverable.
Q. How would a car dealer account for VAT if he is buying and selling a mixture of cars; some which qualify for input tax deduction and some which do not qualify?
A. There is an optional scheme (the Second-Hand Margin Scheme) for accounting for VAT on the sale of second hand cars on which the dealer incurred no VAT when they purchased them.
Under this scheme VAT is only charged on the difference between the purchase and selling price of the car, this is known as the margin.
Any car purchased on an invoice which shows VAT must be accounted for outside the scheme and VAT is due on the full selling price.
Q. If I claimed full VAT recovery on a car for business use a few years ago, but now it is also used for some private use, do I need to refund HMRC?
A. If a business claimed VAT on the basis that the car was used for a business purpose and not made available for private use then the business must account to HMRC for VAT on the value of the car at the time the private use first occurred.
Q. Can I reclaim VAT on a 2nd hand commercial vehicle bought for business purposes with VAT receipts from the dealer?
A. If the vehicle was sold under the Second-Hand Margin Scheme VAT will not be shown separately on the sales invoice and a business will not be able to reclaim any VAT on the purchase even if the vehicle is for business use.
If the vehicle is sold outside the scheme by a VAT registered person then a business will need to obtain a full VAT invoice and may treat the VAT shown as input tax subject to the normal VAT rules.
Q. What VAT is allowed to be claimed on leasing a van?
A. The normal VAT rules apply to the leasing of a van. If a van is leased by a fully taxable business exclusively for business use then all the VAT incurred may be recovered.
If a van is intended partly for private use then only the appropriate portion of VAT relating to the business use should be claimed.
Q. Are there any circumstances where I can claim 50% of the VAT back on purchased non qualifying cars?
A. A non-qualifying car is one where the full input tax block has been incurred by the current or previous owner.
If you purchase a non-qualifying car the supplier accounts for VAT on any profit margin meaning you will not be charged VAT. You will also not receive a full VAT invoice therefore will not be able to reclaim any VAT on the purchase.
Q. Can 50% of the vat be claimed on a car leased prior to VAT registration?
A. The leasing of a car is a service for VAT purposes. In some circumstances VAT incurred on services supplied up to six months prior to the date of registration may be claimed but only if they relate to taxable supplies the business makes from the date of VAT registration.
Q. If a company director has a lease car and the company pays for the fuel does the scale charge need to be applied or does it have to be on a mileage log basis.
A. The VAT road fuel scale charge is a simplified option for accounting for VAT on business fuel used for private journeys but another option is to use a mileage log to claim only the VAT incurred on business mileage.
Q. Am I right in thinking that motorbikes used for work do not need to use the fuel scale charge?
A. The VAT road fuel scale charge is a simplified scheme for accounting for private use of business fuel in cars only. If your business provides fuel for private use in a motorbike you will need to keep mileage records to apportion the cost of fuel between private and business use.
Q. With fuel scale charges, will fuel payment receipts have to include the car registration number?
A. No, but if you opt to use the VAT road fuel scale charge you must use it for all cars in which your business fuel is made available for private use.
Please note that there are other requirements to be recorded for each employee such as recording the rate of mileage allowance, the cc capacity of the vehicle and the amount of VAT claimed as input tax.
Q. How do I calculate the "fuel" element of a mileage allowance?
A. Current rates as published by motoring associations such as the AA or RAC are generally acceptable. HMRC will also accept HMRC’s own advisory rates which are published twice a year and can be found at:
Once you have established the appropriate mileage allowance figure, please remember this is the gross amount and the claimable element of VAT is calculated by dividing the gross amount by 6. e.g. 14p per mile x 500miles then divide by 6 to leave the VAT claimable amount of £11.67.
Q. Can the repairs expenses be reclaimed if the employee pays via their expenses and is reimbursed by employer?
A. A business can reclaim VAT on car repairs paid for by an employee if they are reimbursed directly by the business and relate to a car used for business purposes. The expenses must not be covered by a flat rate payment and the business should retain a tax invoice to support the claim.
Q. Can the company claim the business proportion of VAT a director/employee incurs on petrol (based on mileage log) and other car expenses in the specific case where the car is owned by the director?
A. Provided that the business incurs the cost of the fuel and expenses, such as repair and maintenance, and the car is used for business purposes (travel from home to place of work is not business use for this purpose) then the VAT incurred may be treated as input tax. The conditions to be fulfilled are that the car is used for business purposes and the business bears the costs.