Claiming VAT on vehicles in a Limited company

We see this question come up a lot, can you claim VAT on a company car? The reason this question is so popular is because company car purchases fall under specific VAT rules – which will determine whether or not the liability can be reclaimed.

Firstly, it depends on what kind of vehicle you want to use (car, van etc). You can reclaim the VAT on the purchase of commercial vehicles, but when it comes to cars, it must be proved that it will be used solely for business purposes, this is because VAT and fuel charges would apply, which is not the case for commercial vehicles (such as a van, lorry, tractor, motorcycle, motorhomes, motor caravans, and car-derived vans which are all used for business purposes).

Is it possible to reclaim VAT on the purchase of new cars at all?

You can claim if:

• Your car is being used for business, such as in car hire firms and driving schools.

• Your vehicle is routine for pool cars that are available for use by all employees and not kept at an employee’s residence.

Can I reclaim VAT on cars purchased under a leasing agreement?

As long as you are a VAT-registered business, you can also reclaim VAT if you are buying a car under a lease agreement (50% for personal and business purposes, 100% if it’s solely for business purposes).

Can I reclaim on second-hand cars?

Yes, if again, it is used solely for business purposes.

What if I just hire a car?

Yes, you can usually claim 50% of the VAT on the hire charge.

When can you claim the input VAT on a car?

You may be allowed to reclaim all the VAT on a new car purchase if you use the vehicle only for business purposes. You must be able to prove that the car in question is not used privately, and ensure you keep hold of the relevant invoices. Such as a taxi, for driving instruction and for self-drive hire.

Can I claim VAT on fuel and staff travel?

Yes, as long as it has only been used for business purposes, there are a few methods of reclaiming VAT on fuel if you do not qualify to pay a fixed rate under the Flat Rate Scheme.

It can get a little complex if you do use the car for both personal and business purposes. To deal with this, you will have to reclaim 100% of the VAT and pay the correct fuel scale charge for the vehicle. The following link will help you calculate your correct fuel scale charge.

You can reclaim the VAT for the fuel used on business trips (you must make sure you keep records). It is important to note that if you decide not to reclaim input VAT on fuel for one vehicle, you will not be allowed to reclaim VAT on any other vehicle used in your business.

In terms of staff travel, your company can reclaim VAT on employee travel expenses that involve the use of a business vehicle. However, you cannot claim VAT if you pay a flat rate for your employees’ expenses.

For most limited companies, justifying VAT recovery on the purchase of a car can be complex. If you would like to discuss your business’ circumstances in more detail, please feel free to contact us.