Can I claim VAT back on a business car lease? | How does VAT work on company cars?

Claiming VAT back on a business car lease is an important consideration for VAT-registered companies looking to manage costs effectively. Understanding the rules around how VAT works on company cars can help businesses optimise their tax savings while staying fully compliant with HMRC regulations. This guide explains when and how you can reclaim VAT on leased company vehicles, including the implications of business versus private use and the VAT treatment of maintenance packages.

Can I claim input VAT on the purchase of a car?

Reclaiming VAT on company cars isn’t as simple as it sounds. Generally, businesses can’t recover VAT on purchase of a car unless the car is used exclusively for business purposes. But there are a small number of excepted cars where the Input VAT can be reclaimed, specifically:

• stock-in-trade of a motor manufacturer or dealer;
• cars primarily intended to be used as taxis, driving instruction cars or self-drive hire; or
• a car to be used exclusively for the purposes of your business and not available for private use

This has been clarified through various legal cases, establishing that the car must not be available for personal use to qualify for VAT recovery. This means the car should only be accessible to employees during working hours and never be used for personal trips.

Can I reclaim Input VAT on the costs of a leased car?

If a business leases a qualifying car for business purposes, it can normally reclaim 50% of the input VAT paid. The 50% block is to cover the car’s private use.

What are the rules re VAT for purchasing commercial vehicles?

The rules are generally more straightforward for purchasing commercial vehicles such as vans or lorries. VAT on the purchase of a lorry, van, or other commercial vehicle can be recovered if supplied to a registered person and used for their business or trade. HMRC usually ignores any incidental private use of most types of commercial vehicles.

Navigate VAT rules with confidence

Understanding the VAT implications when purchasing a company car can save your business time and money. By understanding the rules around claiming VAT back on a business car lease, you can ensure your company stays compliant while maximising potential tax savings. Our tax specialists are here to provide expert guidance tailored to your needs. Contact us today to ensure compliance and maximise your savings.