Find out how reclaiming VAT on cars works depending on how you’ve purchased your vehicle (including if it is a used car, brand new or commercial vehicle) and how much VAT can be claimed back, as well as what happens if you use your vehicle for personal as well as business.
Table of contents
1. Is there VAT on Cars in the UK?
When you buy a new or second-hand car from a dealership, then chances are they will add VAT onto the amount you pay. That’s because as a business they’ll be required to register for VAT, when their VAT taxable turnover reaches the VAT threshold, currently £85,000. Once registered they’ll need to add VAT to all their sales, most likely at the standard VAT rate of 20%.
If you buy a used car from a private seller then most possibly will not have paid VAT unless they are buying and selling cars on a regular basis, are registered as a business and their taxable turnover has exceeded the VAT threshold.
To find out whether you’ve paid VAT on the car you have purchased, you’ll need to check the receipt. Businesses that are VAT registered are required by law to provide VAT receipts that details their VAT number and the amount of VAT you’ve paid.
2. How to Reclaim VAT on Cars
You can reclaim VAT on cars, but the amount you can claim will depend on whether the car was new, used or leased.
2.1 Claiming Back VAT on a New Car Purchase
You can reclaim all the VAT on a new car purchase if it is purchased solely for business purposes only. It’s all or nothing. So if you use the car for any personal travel**, no matter how small, you cannot claim back any of the VAT.
This means that in reality, only very few businesses manage to claim any VAT on new cars. Those that do manage to claim VAT back have to prove there is absolutely no personal use of the vehicle, for example by:
- Specifying no personal use in an employees contract;
- Requiring the vehicle is returned to their business premises overnight.
**Personal use includes travel between home and work (unless it is a temporary place of work).
Despite these rules, there are certain jobs that require a vehicle and you may be able to claim all the VAT on a new car if it’s mainly*** used:
- as a taxi;
- by a driving instructor;
- for self-drive hire.
*** The term “mainly” remains undefined by HMRC, it is generally taken that this means at least 50% of the time.
2.2 Claiming Back VAT on Car Leases
In most cases, you can claim 50% of the VAT you pay on leasing a car, even if it is available for private use. You may be able to claim back all the VAT paid on the lease if you can prove:
- the car is used for business reasons only;
- you are a taxi driver;
- you are a driving instructor.
If the car is provided to a Director or Employee of a Limited Company, there may be a P11d benefit in kind to pay on the cash value of the vehicle provided for private use.
2.3 Claiming Back VAT on Second Hand Cars
As with VAT on new cars, you can claim back any VAT you have paid if the car is used for business purposes only. The VAT receipt will show how much VAT you have paid when you bought the car.
Make sure you check the sales invoice though as some used car dealers operate under the VAT margin scheme which means no VAT will be added to the price.
2.4 Claiming Back VAT on Hired Cars
If you need to hire a car because your normal company car is off the road, then in most cases you can claim back 50% of the VAT paid on the hire. If you hire a car for any other reason and don’t have a company car, then you can get 100% of the VAT back if:
- you hire for no more than 10 days;
- it is for business reasons only with absolutely no private use.
2.5 Claiming Back VAT on Commercial vehicles
Commercial vehicles include:
- Lorries;
- Trucks;
- Tractors.
Similar to cars, you can claim back 50% of the VAT paid on commercial vehicles if it is used for both business and privately.
And again you may be able to claim for a 100% of the VAT if you can prove:
- it is used for business reasons only with absolutely no private use;
- you are a taxi driver;
- you are a driving instructor.
Again, if the commercial vehicle is provided to a Director or Employee of a Limited Company, there may be a P11d benefit in kind to pay in the form of additional income tax by the individual and national insurance by the employer.
3. Reclaiming VAT on Vehicle Expenses
Generally, you can reclaim VAT and get tax relief on most of the vehicle expenses paid for company cars or those leased by the business, even if you cannot claim VAT back on the initial car purchase. That includes vehicle expenses like:
- Fuel;
- Maintenance;
- Street parking;
- Car tax;
- Insurance;
- Accessories added at a later date;
- MOT.
If you need help with reclaiming VAT on Cars and Fuel then call the HMRC VAT Helpline on 0300 200 3700.
3.1 Is there VAT on Vehicle Tax?
There is no VAT added to vehicle tax, otherwise, that would be a tax on tax.
3.2 What is a VAT Qualifying Car?
A VAT qualifying car is one that your business has claimed back input VAT on the purchase price in full. In reality these will be cars sold by dealerships rather than private sellers and have a VAT invoice as evidence of the transaction.
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