Can I Reclaim VAT on Cars and Fuel? Reclaiming VAT on cars and fuel can be a complicated area. The answer depends on how you bought the car, what you’ll use it for and how you choose to claim for the cost of fuel.
The amount of VAT you can reclaim on cars and fuel depend differs across every business because it depends on:
- How the car was purchased;
- What it is used for;
- How the cost of fuel is paid for.
Reclaiming VAT on Cars
The main ways that a business can a car is:
- brand new;
- second hand or;
- on a lease.
The rules around VAT are different for each, basically affected by whether what you use the car for and if there is any personal use.
Reclaiming VAT on New Car Purchase
The rules are strict. You can reclaim all the VAT on a new car purchased if it is for business purposes only.
It’s all or nothing.
If you use the car for any portion of personal travel, no matter how small, you will not be able to reclaim any VAT.
It does mean that in reality, only very few business manage to reclaim any VAT on cars.
Those that do manage to claim VAT 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 your 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. 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.
Although the term “mainly” remains undefined by HMRC, it is generally taken that this means at least 50% of the time.
Reclaiming VAT on Leasing a Car
In most cases, you can claim back 50% of the VAT you pay on leasing a car. That includes even if it is available for private use.
That being said, you may be able to reclaim 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.
Reclaiming VAT on Second Hand Cars
As with VAT on new cars, you can reclaim VAT if the car is used for business purposes only.
The purchase invoice will show how much VAT you have paid when you bought the car.
Make sure you check the invoice though as some car dealers operate under the VAT margin scheme which means no VAT will be added to the price.
Reclaiming VAT on Hired Cars
If you need to hire a car because your normal company car s off the road, then in most cases you can reclaim 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 reclaim 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.
Remember private use includes driving from home to your place of work (unless it is a temporary location).
Reclaiming VAT on Commercial vehicles
Commercial vehicles are things like a:
Similar to cars, you can claim back 50% of the VAT paid on commercial vehicles if it is used for both business and privately.
Again you may be able to claim for a 100% VAT reclaim 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.
Reclaiming VAT on Fuel
When you have a company car there are different ways you can pay for the cost of fuel:
- Reclaim 100% of the VAT on fuel that is used purely for business purposes only;
- Reclaim 100% of the VAT on fuel and use the fuel scale charge if all fuel is paid for by the Company for both business and personal use;
- Reclaim VAT on fuel used for business mileage only;
- Claim nothing because your business mileage is so low it would cost you more in fuel scale charges.
1. Reclaim 100% of the VAT on Fuel
You can claim 100% of the VAT on fuel if it is used for business purposes only. You’ll need to be able to prove to HMRC that there is no personal use of the fuel, which can be tricky.
It means that in reality, like with claiming 100% on the purchase of a car, very few businesses are able to do it.
2. – 100% reclaim and a fuel scale charge
This approach is more common, especially where companies provide their staff with fuel cards.
In these cases fuel is provided for both business and personal reasons.
Because it is difficult to track which miles were used for business or privately HMRC sets out a simple rule on how to handle VAT reclaim.
You can claim 100% of the VAT on fuel but pay a Fuel Scale Charge.
A fuel scale charge is effectively an adjustment each quarter on your VAT return to repay some of the 100% VAT reclaimed on fuel.
The amount of VAT Fuel Scale Charge you pay is based on the emissions of the car being used.
Read More: HMRC Fuel Scale Charge
3. Reclaim VAT On Business Mileage Only
The third option is to reclaim 100% of VAT on fuel for actual business mileage travelled.
That means you need to keep a detailed log of where you have travelled along with VAT receipts to support the claim.
This can be onerous.
As an alternative you can choose to claim a flat rate for business mileage travelled and claim back VAT on this amount.
This is known as The Advisory Fuel Rate.
4. Claim No VAT
Some people simply choose to claim nothing for their business fuel, covering the costs personally.
This is mainly happens because their business mileage is so low, the amount reclaimed in fuel and VAT is so small.
Claiming VAT on fuel requires full record keeping and the fuel scale charge can end up costing more than the actual fuel used.
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 reclaim VAT on the car purchase.
That include vehicle expenses like:
- Street parking;
- Car tax;
- Accessories added at a later date;
If you need help with reclaiming VAT on Cars and Fuel then call the HMRC VAT Helpline on 0300 200 3700.
Anita is a Chartered Accountant with over a decade of experience taking self-employed business owners from financially confused to business savvy.
She is the creator of the ‘Go Self Employed’ website, which is her corner on the internet where she makes self-employment less terrifying.