VAT is a tax that is usually collected by HMRC on goods and services at the current rate of 20% with discounts applying to certain items. According to the VAT Act 1994, s25(7), VAT is excluded or exempt on specified supplies, acquisitions and importations from credit for input tax against the output tax. Public Notice 700/64 Motoring Expenses 3.5 states that if you are a taxable person or businesses owner and purchased a new car, you can fully reclaim VAT or input tax on a new car from its purchase price to HMRC by following these below VAT rules for cars including:


  1. If you are VAT registered and intend to use a car exclusively for business use and for business journey or trips and never for private use.
  2. If you Instruct your employees or anyone’s else that cars must be used only for business, never use for private purpose such as travelling between home and work and have their signed acknowledgement to confirm their agreement against this restriction.
  3. If the car is returned to business premises at the end of the working day by the last person use to it and never ever use it for private purpose or taken home privately in the evenings.
  4. If the mileage log is completed and retained regarding the use of a car from purchase to onwards including
  • date of journey
  • name of an employee who used the vehicle
  • purpose of the journey
  • venues from where to where
  • miles at the start of the journey
  • miles at the end of journey and signature of employee that the car is never allotted to any individual on a permanent basis.

5. If you have saved the car keys in locked safe and you have the login and out code or procedure for the safe which you provide to your employee if a car is required for the business purpose.

6. It would be useful for your business to have a company handbook which staff have to signsaying   they cannot use a car for private use.

As accountants feel that if businesses follow these above instructions or provide these pieces of evidence to HMRC, they would be able to reclaim VAT on new cars that they specifically use for business purpose. Because if you use your company car for private use, you would not be able to reclaim VAT on your company car due to private use restriction.

VAT on leased cars:

If you lease a car for business purpose such as to use it as taxi and for driving instruction and for self-drive hire, you can reclaim full VAT on leased cars.

VAT on Commercial Vehicle:

You can reclaim full VAT on commercial vehicles if you buy them for only business purpose including motorcycles, motor homes and motor caravans, vans with rear seats, car-derived vans, lorry and tractor.

Our team of professional accountants at Berkshire accountants limited not only help small businesses to keep their VAT records updated but also support them with their VAT submissions. Our Berkshire accountants provide advice to businesses on purchase of a vehicle that whether this vehicle is eligible for VAT recovery or not. If you need any assistance please click here