Can you claim VAT back on a company car?

Full answer

HMRC's VAT rules on company cars are strict and most businesses cannot reclaim all the VAT they pay. **VAT on purchasing a car:** You cannot reclaim input VAT on a car purchase unless the vehicle is used **exclusively for business purposes** and private use is **impossible** — for example, a taxi, driving instructor's car, or a car used purely for pool/demonstration purposes that is never taken home. In practice this is very difficult to demonstrate, and HMRC scrutinises these claims closely. **VAT on leasing a car:** If a leased car is used for any private journeys, only **50%** of the VAT on lease payments can be reclaimed. If you can demonstrate 100% business use (same strict test as above), you can reclaim 100%. **VAT on running costs:** Fuel, servicing, and accessories are treated separately. If you use a fuel scale charge you can reclaim VAT on all fuel; alternatively, only the business proportion of fuel VAT is reclaimable without the scale charge. **Commercial vehicles (vans):** Vans and other commercial vehicles (not cars under VAT law) are treated differently — you can reclaim 100% of VAT on purchase if the vehicle is used for business, even if some private use occurs (subject to the scale charge for fuel). **Definition of a "car" for VAT:** HMRC defines a car as any motor vehicle with not more than 3 tonnes GVW that is constructed or adapted for carrying passengers, with fewer than 12 seats. SUVs and MPVs typically qualify as cars unless they meet the commercial vehicle definition. **Class 1A NI:** Employer also pays Class 1A NI (15%) on the car benefit in kind value — reclaiming VAT does not remove this obligation.

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