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Claiming VAT on Motor Expenses and Fuel

Use this help guide for reclaiming VAT on vehicles and fuel costs. In some cases you can claim all the VAT portion after buying a new car if you only use it for business.

CLAIMING VAT ON VEHICLES: This only applies to new cars that are not available for private use.

Another stipulation is being able to show that private use is not allowed. One way of doing this is specifying it in the employee contract of employment.

Note: For VAT purposes ‘private use‘ includes travel between home and work. The exception could be where it is a temporary place of work.

As a rule, businesses can also claim all the VAT on a new car providing its main use is for driving instruction, self-drive hire, or as a taxi.

Claiming VAT on Lease Cars

In most cases you can claim 50% of the VAT part when you lease a car. But, reclaiming all the VAT on lease cars has certain requirements. The car must only get used for business and must not be available for private use.

Note: The same rules also apply if its main use is for driving instruction or used as a taxi.

VAT on Self Drive Hire Vehicles

There may be times when need to hire a car for your business. It could be to replace a company car while it is off the road. In this case you should be able to claim 50% of the VAT content on the hire charge.

There are other reasons for hiring a car. You may decide to hire a vehicle if you do not own a company car. As a rule, your business can reclaim the total VAT portion providing all the following apply:

  • Your business hires the car for a maximum of ten (10) days.
  • The car must only get used for business and must not be available for private use.

Claiming VAT Back on Commercial Vehicles

Reclaiming the VAT is quite standard after buying a commercial vehicle (e.g. a lorry, van, or farm vehicles). But, to get the VAT back on commercial vehicles you must only use them for business.

Providing the use is only for business you can also reclaim VAT UK on:

  • Motorcycles
  • Motorhomes and motor caravans
  • Vans with rear seats (often called combi vans)
  • Car-derived vans

Reclaiming VAT on Fuel Costs

There are several different Value Added Tax rules for reclaiming VAT on fuel. There is an exception for businesses using the VAT Flat Rate Scheme to pay a fixed rate.

A business can reclaim all the VAT on fuel costs when the vehicle gets used only for business purposes. But, there are 3 different ways of reclaiming if it gets used for both business and private purposes. In these cases you can:

  • Reclaim all the VAT content and pay the correct fuel scale charge. There is an online tool to work out your VAT fuel scale charge for your vehicle.
  • Reclaim VAT on fuel used for business trips only. In this case you would need to keep detailed records of the mileage data.
  • Decide against reclaiming VAT on fuel costs. The fuel scale charge can be higher than the VAT you can reclaim when the business mileage is very low.

Note: Not reclaiming VAT on fuel for one vehicle means you cannot reclaim VAT on fuel for any other business vehicles you may have.

VAT on Additional Motoring Costs

As a rule, VAT businesses can also reclaim for:

  • All business-related vehicle day to day running and maintenance costs. That would include mechanical repairs or off-street parking fees.
  • Vehicle accessories if they get fitted for use in the business.

Note: You can claim for these even if your business cannot reclaim for Value Added Tax on the actual vehicle.

Reclaiming VAT on Used Cars

There are special rules for reclaiming Value Added Tax on used vehicles. For example, the VAT sales invoice must show the exact amount you paid.

You will be unable to reclaim Value Added Tax unless it shows. This might happen if the seller uses one of the VAT margin schemes.

Reclaiming VAT on Employee Travel Expenses

Reclaims apply to employee travel expenses when they are for business trips. That would also include any meals and accommodation that your business pays for.

But you cannot reclaim if your business pays employees a flat rate for their expenses. Likewise, the business cannot reclaim Value Added Tax on entertainment costs.

Who Counts as an Employee for VAT Reclaims?

The following is a list of people who would count as employees for reclaims of Value Added Tax:

  • People directly employed by your business (but not employment agency workers).
  • Partners, directors, or any other business managers.
  • Self-employed workers who get treated as employees (cannot reclaim travel expenses for this group).
  • Stewards and helpers who help to run business events.

The following is a list of people who would not count as employees for reclaims of Value Added Tax:

  • Any shareholders if they are not employed by the business.
  • Pensioners and any former employees of the business.
  • A person applying for a job (e.g. an interviewee).

Claiming VAT on Vehicles and Staff Travel Expenses in the United Kingdom