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Reclaiming VAT on business vehicles

When you run your own small business, it is important to make yourself aware of the intricacies of business tax. VAT on business vehicles is one of the taxes which can often cause new small business owners some confusion, so it is important that you know exactly how to deal with it.

VAT can be reclaimed by any VAT registered business for goods and services which are used for commercial purposes. To reclaim VAT on a business vehicle, you must therefore be able to prove that the vehicle is for business purposes.

There are many different methods for reclaiming VAT on business vehicles, and there are pros and cons to each. This article will talk you through how to negotiate reclaiming VAT on vehicle expenses.

Buying a commercial vehicle

You should be able to reclaim the full VAT for commercial vehicles used solely for business purposes. Commercial vehicles are typically going to be:

  • HGVs
  • Tractors
  • Vans
  • Coaches

Dual purpose vehicles

There are some vehicles which are classified as commercial even where they could have a dual purpose and are sold as ‘lifestyle’ vehicles. As long as such a vehicle was used for business purposes only, you can still reclaim the full VAT on vehicles such as these. According to HMRC, these can include:

  • Car-derived vans
  • Vans with rear seats
  • Motorbikes
  • Motorhomes
  • Caravans

Buying a new car

If the car is to be used only for business purposes, then you should be able to reclaim all of the VAT on a new car. In order to do this, you must be able to demonstrate that the car will not be available for private (non-business) use, such as if you use it as a taxi, for self-drive hire or for driving instruction.  It is important to note that ‘private use’ includes travelling between home and work – unless it is a temporary workplace.

Buying a used car

As long as your invoice for the sale shows the VAT paid by you, you can reclaim it. If the seller uses the VAT margin scheme, then you will not be able to claim back any VAT.

Leasing a car

If you choose to lease a car for business purposes, then you may be able to reclaim all of the VAT. Again, this is dependent on the car being used solely for business.

Self-drive hire car

If you need to hire a car for business purposes, then you will still be able to reclaim some or all of the VAT. If you need to hire a car to replace a company car which is broken down or off-road, then you should be able to claim 50% of the VAT back. If you hire for a different reason (for example, if your business does have a company car), then you should be able to reclaim the full VAT, as long as the following stipulations apply:

  • You only have the car for up to 10 days
  • It is used only for business and is not available for private use

Fuel costs

If your fuel is only used for business, then these are the different ways of reclaiming VAT for fuel (unless you already pay a fixed VAT flat rate):

  • Reclaim all the VAT and pay the correct fuel scale charge
  • Reclaim the fuel VAT you use for busines trips by keeping mileage records
  • Do not reclaim any VAT for fuel. This is the best option if your fuel mileage is so low that your fuel scale charge would be more than the VAT amount you could claim back

It is important to note that whichever option you choose will apply to all of your business vehicles.

Reclaiming the VAT

As you have seen, VAT registered companies can reclaim the full VAT when they buy or use a vehicle for purely business purposes. If the vehicle is to be used privately too, you will only be able to reclaim part of the VAT.

For more information about calculating VAT, use our online VAT Calculator.

You can also find out about important tax changes to VAT for the current tax year.