VAT rules for cars used in your business are generally strict. However, on certain motor expenses, HMRC are surprisingly generous.
When it comes to the cost of repairing and maintaining your car, the VAT rules become interesting. HMRC allows you to reclaim 100% of the VAT paid on this sort of expenditure even when you use the car for private use.
This does not only apply to cars owned by your business, it also applies to cars personally owned by you if they are used for business journeys.
James owns a cleaning business. He employs two staff and all three of them use their own cars to travel to and from clients, and also for private journeys. James pays for the cars’ servicing costs and deducts what he pays from the mileage allowance (net of element relating to fuel) he pays them.
The business is entitled to reclaim all the VAT on his and his employees’ car service bills. The business can also reclaim 100% of the VAT on costs for new tyres, cleaning and repair.
This VAT break can also be used by companies that pay service bills for directors, employees and even freelance contractors on certain conditions. The usual apportionment between business and private use isn’t required.