Reclaiming VAT on Cars and Motoring Expenses
For Reclaiming VAT on Cars and Motoring Expenses CarLease4u.com though it would be really useful to put together a guide to simplify reclaiming VAT on Cars and Motor Expenses.
If you are VAT registered and buy a car you generally can’t reclaim the VAT. There are some exceptions where your car is used 100% for business use, such as: Reclaiming VAT on Cars and Motoring Expenses
• A taxi
• A driving school vehicle
• For self-drive hire
Reclaiming VAT on Cars and Motoring Expenses
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 exclusively for business purposes. Reclaiming VAT on Cars and Motoring Expenses
You can reclaim all the VAT charged on vehicle repairs and maintenance so long as:
• Your business pays for the work
• There is some business use of the vehicle
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. Reclaiming VAT on Cars and Motoring Expenses
Fortunately, the information contained on the gov.uk website is becoming more accesible and clearer. In this guide, we are summarising the main points for you. The Gov.uk pages relating to VAT on motoring expeneses are here.
Reclaiming VAT when you buy a car Reclaiming VAT on Cars and Motoring Expenses
Generally you cannot 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:
• The car will be used exclusively for business purposes and you can show that it’s not available for private use by your employees or anyone else. The burden of proof lies with you. You will have to demonstrate that the vehicle is a genuine pool car and that adequate measures are in place to ensure that the vehicle is not available for private use. Reclaiming VAT on Cars and Motoring Expenses
• You intend to use the car mainly as a taxi, a driving school car or a self-drive hire car – 100% business use
• You are a car dealer and the car will be part of your stock in trade that you intend to sell within the next 12 months Reclaiming VAT on Cars and Motoring Expenses
Private use of a car bought for business use Reclaiming VAT on Cars and Motoring Expenses
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:
• Used exclusively for business purposes
• Used mainly as a taxi, driving school car or hire car (for example, its use as a taxi is less than 50 per cent of its total usage)
• A stock in trade car
The current value is the current purchase price of an identical or similar model.
You can find out more about accounting for VAT when you use something privately below.
Private use of goods or services, self-supply and VAT Reclaiming VAT on Cars and Motoring Expenses Reclaiming VAT on Cars and Motoring Expenses
Reclaiming VAT when you lease or hire a car
If you lease or contract hire 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 considers that there’ll be some private use of the vehicle. Reclaiming VAT on Cars and Motoring Expenses
But sometimes this 50 per cent limit doesn’t apply. You can reclaim all the VAT if the leased car is any of these:
• A taxi that’s hired out with a driver
• A self-drive hire car
• A driving school vehicle
• A car on which input tax has been blocked at an earlier stage
• Exclusively for business use
Short-Term Hire Reclaiming VAT on Cars and Motoring Expenses
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. Reclaiming VAT on Cars and Motoring Expenses
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: Reclaiming VAT on Cars and Motoring Expenses
• You hire the car for no more than ten days
• You use it specifically for your business
Reclaiming VAT when you sell a car or end a lease
You’ll need to consider the VAT treatment if you:
• Sell a car on
• End a lease agreement early
VAT when you sell a car Reclaiming VAT on Cars and Motoring Expenses
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 will 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.
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.
VAT when you end a lease early Reclaiming VAT on Cars and Motoring Expenses
If you end a car lease or contract hire 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:
• Taxable for VAT purposes
• Outside the scope of VAT
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.
Reclaiming VAT on repairs and maintenance Reclaiming VAT on Cars and Motoring Expenses
You can reclaim all the VAT you’re charged on repairs and maintenance to a vehicle so long as:
• The vehicle is used to some extent for business purposes
• The business pays for the work to be done
It doesn’t matter if the car is used for private motoring or if you have decided not to reclaim the VAT on road fuel for business travel.
Reclaiming VAT on other motoring expenses
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.
Reclaiming VAT on Cars and Motoring Expenses
You can get information on apportioning VAT in a mixed business-private use in our related guide below.
Purchases for both business and private use: reclaiming VAT Reclaiming VAT on Cars and Motoring Expenses
Car parking charges Reclaiming VAT on Cars and Motoring Expenses
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. Reclaiming VAT on Cars and Motoring Expenses
Reclaiming VAT on road fuel Reclaiming VAT on Cars and Motoring Expenses
If your business pays for road fuel, you can deal with the VAT charged on the fuel in one of four ways:
• Reclaim all of the VAT. You must use the fuel only for business purposes.
• Reclaim all of the VAT and pay the appropriate fuel scale charge – this is a way of accounting for output tax on fuel that your business buys but that’s then used for private motoring.
• Reclaim only the VAT that relates to fuel used for business mileage. You’ll need to keep detailed records of your business and private mileage. Reclaiming VAT on Cars and Motoring Expenses
• Don’t reclaim any VAT. This can be a useful option if your mileage is low and also if you use the fuel for both business and private motoring. If you choose this option you must apply it to all vehicles including commercial vehicles. Reclaiming VAT on Cars and Motoring Expenses
Flat Rate Scheme Reclaiming VAT on Cars and Motoring Expenses
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 need to claim any VAT on fuel, and you won’t use the fuel scale charge to pay VAT on fuel used for private motoring. Reclaiming VAT on Cars and Motoring Expenses
Summary Reclaiming VAT on Cars and Motoring Expenses
Hopefully this guide has been useful. To re-iterate the information available for the Gov.uk pages and the HMRC pages: The Gov.uk pages relating to VAT on motoring expeneses are here. If you would like to ask any leasing or contract hire specific questions – get in touch with us here.
Reclaiming VAT on Cars and Motoring Expenses