Recovering VAT on car purchases

There are complex VAT rules that determine how you can recover VAT on car purchases. The usual fallback rule is that if you purchase a car for your business then no VAT can be reclaimed. 

The main exception to this rule is if the new car is used solely for business use. To qualify for VAT recovery the car must not be available for any private use and you must be able to demonstrate this. This means that the car should only be available to staff during working hours and should never be used for personal journeys.

It is also possible to claim back the VAT on a new car that is purchased for a business-related activity such as for use as a taxi, self-drive hire car or a car for driving instruction.

If your business leases a car for business purposes, then you can normally reclaim 50% of the VAT paid. Also, 100% of the VAT can be reclaimed if the car is used exclusively for a qualifying business purpose, such as a taxi or a car for driving instruction.

The rules are generally more straight forward for the purchase of commercial vehicles such as a van, lorry or tractor that are used only for business. Input paid on these purchases would normally be fully recoverable.

The VAT incurred on the purchase of motorcycles, motorhomes and motor caravans, vans with rear seats (combi vans) and car-derived vans can also be recovered if the vehicles are used solely for business use.