There are many taxes involved in a business and VAT on vehicles is one of them. The reclaiming of VAT on motoring expenses is creating a lot of confusion for both businesses and advisers. As a business person, you can only reclaim VAT on goods and service that are used for commercial purposes. But, you must have it on record so that you can support your claim. Also, you must have valid VAT invoices to prove that the vehicle is used for business purpose only.
There are different methods of reclaiming VAT on vehicle expenses and each one has its own advantages. Let’s have a look at how different methods for reclaiming VAT on vehicle expenses works.
VAT And Car Leasing
If the business vehicle is also used for personal purposes, then you can reclaim only 50% of the VAT on leasing charges. However, the VAT can be fully recovered on other charges, such as maintenance and road-side assistance.
Generally, most companies hire cars for their employees on a short-term leasing contract so that they can reclaim full VAT. But, full VAT can be recovered only if the hire is less than 5 days otherwise, it will come under the 50% restriction by HMRC.
VAT On Servicing And Repairs
You don’t need a specific sort of distribution to recover VAT on servicing and repairs. If the purchase and lease of the vehicle come under the VAT restrictions of HMRC, then everything related to repair and service will be eligible for VAT recovery.
According to HMRC rules, you can reclaim full VAT on car running costs as long as it is used for business purposes. That means if the car is used for few business trips in the year and then used personally, it’ll still be eligible for full VAT recovery.
The interesting thing about this is that you can also reclaim the servicing cost of the cars that don’t belong to the business. For example, if you pay for the servicing costs of your employees’ cars that are used for business trips; you can claim tax relief on it. The same thing applies to accessories that you install in your car after delivery.
VAT On Mileage Allowances
According to HMRC rules, an employee using his car for business purpose can claim VAT on mileage allowances at a rate of 45p per mile for the first 10,000 miles and after that 25p per mile. However, if the company is paying you more for the mileage allowances, then you have to pay tax for that extra amount.
The 45p (or 25p) per mile allowances that you get from HMRC also covers the expenses of petrol, wear and tear, and other running costs. The current rates of HMRC can be different than this, so don’t forget to check that. Also, make sure that you have valid petrol receipts to claim the VAT on mileage allowances. For example, if you are claiming a VAT of worth £2.67, you must have petrol receipts of £16.
VAT On Fuel Costs
A business can claim 100% VAT on fuel costs of vehicle if it is used for business purpose only. However, if the vehicle is used for both business and personal trips, then there are 3 different ways of reclaiming tax on the resulting fuel costs.
- Paying the right fuel scale charge for your vehicle and reclaiming the full VAT.
- Reclaiming VAT only for the fuel that is used for business trips and for that you should have proper mileage records.
- Not reclaiming VAT on any fuel costs. For example, if the mileage of business trips is so low that the fuel scale charges would be much higher than the VAT you can reclaim.
But, remember that if you don’t reclaim VAT on fuel costs of one vehicle, you wouldn’t be able to reclaim VAT on fuel costs of other business vehicles as well.
VAT can be reclaimed on all business-related vehicle expenses.
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