In this article about VAT and motoring expenses I’m going to give you a short overview about when you can claim VAT on a car, claiming VAT on commercial vehicles, VAT on repairs and maintenance to your vehicles, what you need to do when you are reclaiming VAT on your motor fuel and what records you need to keep. All of the information I’m going to tell you about today is available in much more detail on the GOV.UK website, so if you’re uncertain about anything at all, do make sure you check it out.
In general terms you can’t claim VAT on a car and accessories. I’ll tell you more about the ins and outs of cars in a minute, but for accessories – if you buy a car that you can’t reclaim the VAT on – then you can’t reclaim the VAT on any accessories that are fitted to it at the time of purchase either. This is because the accessories are considered to be part of a single supply of the car – for which the VAT can’t be reclaimed. If you later buy an accessory for a car that’s owned by, or used in the business, you can only reclaim the VAT if the accessory has a business use. As I said earlier, when you buy a car — and this includes under a hire purchase agreement – you generally can’t reclaim the VAT. There are some exceptions – what we call ‘qualifying cars’ – for example when car is ‘stock in trade’, or the car is used primarily as one of the following, as a taxi, for driving instruction or for self-drive hire and will be used exclusively for business purposes. This means the car will not be made available for the private use of anyone.
Remember, journeys to and from work are private use. It’s important that you fully understand the difference between when you can and can’t reclaim the VAT on a car so, if you are uncertain, make sure you look at the guidance on the website. You’ll find much more information about motor expenses there.
So, what happens if you want to lease or hire a car? If you lease a car for business use you’ll normally be able to reclaim only 50 per cent of the VAT. This is because HMRC considers that there’ll be some private use of the vehicle. Sometimes this 50 per cent limit doesn’t apply. You can reclaim all the VAT if the leased car is any of these: used exclusively for business purposes, a taxi
that’s hired out with a driver, a driving school vehicle or a self-drive hire car. If you hire a car just to replace a company car that’s off the road, then you’ll only be able to reclaim 50 per cent of the VAT on the hire charge. But if you hire a car for another reason – perhaps you don’t have a company car – then you can reclaim all the VAT so long as both of the following apply: you hire the car for no more than ten days and you use it specifically for business purposes. Okay — so what about commercial vehicles?
Can you claim VAT on a commercial vehicle?
Yes, you can if you use it in your business. You’ll normally be able to reclaim the VAT on a commercial vehicle, like a panel van or truck that you buy for use in your business, so long as you follow the normal rules for reclaiming VAT. Whether it’s a car or a commercial vehicle you will have to charge VAT on the full selling price. You’ll need to issue a VAT invoice if the buyer is VAT registered.
If you haven’t recovered any VAT, then you won’t need to account for VAT when you sell either a car or commercial vehicle. If you couldn’t reclaim the VAT on the original purchase price of a car you bought new, you won’t have to charge any VAT when you sell it. This is because the sale of the car will be exempt for VAT purposes. You can reclaim all the VAT you’re charged on repairs and maintenance to a vehicle so long as: the vehicle is used to some extent for business purposes, and the business pays for the work to be done. It doesn’t matter if the car is used for private motoring or if you’ve decided not to reclaim the VAT on road fuel for business travel. But you can’t reclaim the VAT on vehicle repairs and maintenance if you use the vehicle only for your own private motoring. You can usually recover the VAT on most other business motoring expenses like off-street parking. Some car parking charges, for example in multi-storey car parks, include VAT at the standard rate.
Other car parks may or may not include VAT – you’ll have to check with the provider, or the receipt may indicate if VAT was charged – but there’s no VAT on on-street parking meter charges. Remember that if you use your car for both business and private motoring you’ll only be able to reclaim the VAT on the proportion that relates to business use. There are special rules for reclaiming VAT on road fuel used for business purposes and I’ll be telling you more about that next. If your business pays for road fuel, you can deal with the VAT charged on the fuel in one of three ways. Reclaim all of the VAT and pay the fuel scale charge based on the CO2 band for your car – this is a way of accounting for output tax on fuel that your business buys but that’s then used for private motoring.
If you use the scale charge, you can recover all the VAT charged on road fuel without having to split your mileage between business and private use. A lot of businesses find this an easy option because you don’t need to do any calculations; you just use the right charge for your car. I’ll give you an example of how the scale charge works shortly. Reclaim only the VAT that relates to fuel used for business mileage. You’ll need to keep detailed records of your business and private mileage. I’m also going to show you an example of this. Not reclaim any VAT. This can be a useful option if your mileage is low and also if you use the fuel for both business and private motoring. If you choose this option you must apply it to all vehicles including commercial vehicles. In this example, your car has a CO2 band of 130. From the table, the scale charge for this band is £44.83 per quarter. This figure is added to the VAT on your sales for the quarter and the VAT on your fuel purchases will be included in with your usual purchases. What if you change your car? If you change your car during a tax period and the new car is in a different category – perhaps you change a CO2 band 210 car for a CO2 band 150 car – you should account for VAT by apportioning the scale charges for the two of the scales. If for example, your records show that the total mileage is 4,290 – of which 3,165 is business mileage, and the total cost of the fuel is £368, then in this example: The cost of the business mileage is £368 × 3,165 ÷ 42.90 = £271.49. The input tax is £271.49 × 6 = £45.24 and this is the VAT you can reclaim.
For employee’s road fuel, if you reimburse your employees for road fuel used you can treat the VAT they paid as your input tax. But you must be able to show that you have reimbursed them for their actual expenditure on the road fuel. If fuel bought by your employees for business is put into private use, you must account for output tax on the private use using the scale charges. You must also get and keep invoices for all fuel purchased by your employees.
Input tax can only be claimed on the cost of fuel for business use in making taxable supplies. If you pay your employees a mileage allowance, you work out your input tax by taking the fuel element of the mileage allowance and divide it by 6, and that will give you the VAT included in that amount. You can do this for all fuel bought. The allowance paid to employees must be based upon mileage actually done and mileage records must be kept.
Now, I’m going to talk about record keeping. As with all record keeping you must keep all of your receipts when you buy fuel or anything for your car. If you are using the mileagerecord method, then you must keep a detailed record of your business miles on a regular basis. You must keep records showing: the number of cars for which free or below cost fuel is provided, the CO2 band of each car, the cylinder capacity of each car where a car is too old to have a CO2 emissions figure, and if a car is changed, your records should show the date of the change. You will probably find that you can adapt your normal business records to give you this information. Each period you should include the total amount of VAT to be accounted for on the VAT payable side of your VAT account. Any VAT that you are recovering when you buy your fuel will be included in your normal purchase records.
VAT fuel scale charge 2014/15 – 1 month period
|CO2 band||VAT fuel scale charge, 1 month period||VAT on 1 month charge||VAT exclusive 1 month charge|
|120 or less||£52.00||£8.67||£43.33|
VAT fuel scale charge 2014/15 – 3 month period
|CO2 band||VAT fuel scale charge, 3 month period||VAT on 3 month charge||VAT exclusive 3 month charge|
|120 or less||£156.00||£26.00||£130.00|
VAT fuel scale charge 2014/15 – 12 month period
|CO2 band||VAT fuel scale charge, 12 month period, £||VAT on 12 month charge, £||VAT exclusive 12 month charge, £|
|120 or less||£627.00||£104.50||£522.50|