If you are looking to buy a car through your VAT registered business then there are several things to consider; it can be a great tax saving idea however you must consider all of the implications. The most important point is that the VAT on the purchase of the vehicle can only be claimed back if it is used 100% for business purposes, meaning no private usage at all.
A good example of this would be a pool car. A pool car is available for use by any employee for solely business purposes during working hours and is kept on site when not in use.
You may also be able to claim all the VAT on a new car if it’s mainly used:
- as a taxi
- for driving instruction
The same rules apply for commercial vehicles such as vans, lorries and tractors. As long as they are solely used for business use then the VAT can be reclaimed.
If the vehicle is not used 100% for business then you need to consider the other tax consequences such as a personal tax benefit in kind and an employer National insurance charge.
Please note a daily commute to your regular place of work is not considered as business use according to HMRC guidance.
Leasing a car
If you lease a car, you can usually claim back 50% of the VAT. You may be able to reclaim all the VAT if the car is used only for business and is not available for private use, or is mainly used as a taxi or for driving instruction.
Self-drive hire cars
If you hire a car to replace a business car that’s off the road, you can usually claim 50% of the VAT on the hire charge.
You can usually reclaim the VAT for:
- all business-related running and maintenance costs, eg repairs or off-street parking
- any accessories fitted for business use
You can do this even if you can’t reclaim VAT on the vehicle itself.
If you are considering buying a vehicle for your business or would like more details then please feel free to contact us.
Calum Ainge, Accountant