VAT recovery when leasing vehicles

The VAT treatment of motoring expenses is relevant to any business that incurs VAT on motor expenses.

We have covered below some important points to be aware of concerning the recovery of input tax (VAT) when leasing vehicles:

  • Leasing company recovering VAT on purchase of cars. A leasing company can usually recover the VAT incurred as long as the cars are leased at a commercial rate.
  • Business leasing a car and recovering the VAT. If a business leases a ‘qualifying car’ for business purposes, they can generally recover 50% of the VAT charged. The 50% disallowed covers any private use of the car. The business can reclaim the remaining 50% of the VAT charged, subject to the normal rules.
  • Cars leased primarily for taxi or driving instruction. A business can reclaim all of the VAT charged on the lease if the car is a qualifying car and the business intends to use it primarily for:
    • hire with a driver for carrying passengers; or
    • providing driving instruction.
  • The 50% block on VAT recovery also applies to self-drive hire (daily rental) as well as leasing. This restriction applies if the car is hired simply to replace an off the road ordinary company car.
Source:HM Revenue & Customs| 13-08-2023

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