‘Will I be able to reclaim the VAT if I purchase a car solely for business purposes?’
That’s a question many people ask their accountants. The answer is that many rules and regulations govern the process for reclaiming VAT on car leases and purchases, and they must all be taken into account before a decision can be made. So, what are these rules and regulations?
This blog will give you an understanding of them and help you to know whether you can reclaim VAT on your purchase.
On what types of vehicle can you reclaim input VAT?
Whether you can reclaim VAT depends on whether you’re dealing with a car, a van, or another type of vehicle. Usually, reclaiming VAT on cars is prohibited, unless they are solely used for business purposes and you can prove that to be the case. You are, however, allowed to reclaim the VAT on the purchase of commercial vehicles, including vans.
If an employer utilizes a car for private use, VAT and fuel charges apply, which is not the case for commercial vehicles.
Examples of vehicles that you are able to reclaim VAT for include:
- Commercial vehicles, where the primary purpose is to carry goods and they have a load of at least one tonne.
- Lorries and tractors used for business purposes.
- Motorcycles, motorhomes, motor caravans and car-derived vans which are only used for business purposes.
Reclaiming VAT on the purchase of new cars
As mentioned above, VAT reclaims are usually prohibited on the purchase of cars, but a claim is possible if the company meets both of the following conditions.
Reclaiming input VAT should be a straightforward process for cars used for business, such as in car hire firms and driving schools. It should also be routine for pool cars that are available for use by all employees and not kept at an employee’s residence.
Reclaiming VAT on cars purchased under a leasing agreement
Your VAT-registered business can also reclaim VAT if you are buying a car under a lease agreement. You can reclaim 50% if it is used for both personal and business purposes, and 100% if the use is strictly limited to business.
You can also obtain VAT refunds on cars leased as driving instruction vehicles or taxis.
Reclaiming VAT on second-hand cars
Like any other car purchase, you can reclaim the input VAT only if the car is used solely for business purposes. The VAT will be shown on the VAT receipt. Make sure you check the sales invoice as some car dealerships operate under the VAT margin scheme, meaning the price will not include VAT.
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 show that the car is not used privately, for example, if that is a clause in an employee’s contract.
Private use of a car includes traveling between home and work if you’re based at a permanent workplace.
You are also allowed to claim the VAT on a car purchase if the vehicle is primarily used:
- As a taxi.
- For driving instruction.
- For self-drive hire.
Claiming VAT on fuel
There are multiple methods of reclaiming VAT on fuel if you do not qualify to pay a fixed rate under the Flat Rate Scheme.
Similar to the purchase of new cars, you can reclaim all of the VAT on fuel if the vehicle is used solely for business purposes.
If you use the car for both personal and business purposes, there are three ways of dealing with the VAT on fuel:
- Reclaim 100% of the VAT and pay the correct fuel scale charge for the vehicle. This will not require you to keep detailed mileage records.
- Reclaim the VAT for the fuel used on business trips. This will require you to keep detailed mileage records.
- Do not claim any VAT on fuel. If your mileage is low and the fuel scale charge is greater than the input VAT claim, this may be an option.
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.
Claiming VAT on staff travel
A company can reclaim VAT on employee travel expenses that involve the use of a business vehicle. You can’t claim VAT if you pay a flat rate for employees’ expenses.
You are allowed to claim VAT for other additional vehicle-related costs, including:
- Accessories fitted to vehicles for use in relation to the business.
- Business-related maintenance and running expenses, including off-street parking and repairs.
- Business vehicle insurance.
- MOT costs.
In conclusion, if you purchase a vehicle for your business, you are often allowed to reclaim the VAT in full. However, if you use it for personal use or dual purposes, there may be restrictions on the amount of VAT that you can reclaim.
Clearly, weighing up the costs and benefits of buying a car and paying for travel through your business is not always straightforward. Contacting a specialist VAT accountant might be the best option to clear your doubts on VAT reclaiming on business vehicles.
We at WIS Accountancy Ltd are qualified to provide you with advice on the most tax-efficient ways of obtaining a car, and other VAT-related queries. Please feel free to contact our specialist team of VAT accountants on 0203 0111 898 if you require any help regarding reclaiming VAT on the purchase of vehicles.
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