HMRC makes reclaiming VAT on a car purchase difficult. However, their position on VAT for leased vehicles is more relaxed.
Apart from a few exceptions, i.e. taxis, HMRC won’t allow the VAT on the purchase of a car if there is any private use at all.
This rule doesn’t apply to leased cars and, since June 2019, it doesn’t apply to other items with personal contract purchases (PCPs).
If you lease or buy a car using a qualifying PCP and it is for business use, you can reclaim 50% of the VAT charged on the lease payments.
The amount of private use of the car won’t affect the percentage. If there is business use, you can reclaim 50% of the VAT.
It is hard to tell whether a contract is of the type which will let you reclaim VAT.
The easiest way to check is to check on any invoices from the finance company.
Generally, if each of these payments include an amount for VAT, you can reclaim 50%. If not, you will need to look more closely at the paperwork.
If you’re still unsure, you can ring the finance company and ask.
Some finance companies issue a VAT invoice once a year.
In the interim they may send payments invoices without VAT on, making you think you can’t reclaim it.
Always make sure you get a VAT invoice once at least once a year, to check whether you can reclaim it or not.
You may be able to claim more than 50% of the VAT charged for additional costs in your lease.
This is because the 50% rule doesn’t apply to maintenance charge included in your lease which cover servicing or wear and tear, if they are shown separately on the invoice.
You can reclaim 100% of VAT paid on separately charges servicing and maintenance amounts.
You can also reclaim 100% of the VAT you pay where the business arranges for the servicing and maintenance.
These percentages are not affected by any private use.