Can I Reclaim VAT on Company Cars or Vans

This is one of the most important VAT questions for business owners and one of the easiest areas to get wrong. Vehicles are expensive, VAT is often substantial, and the rules are far stricter than many people expect. I regularly see businesses assume VAT is reclaimable simply because a vehicle is used for work, only to face problems later when HMRC review the claim.

In this article, I will explain clearly when you can reclaim VAT on company cars or vans, when you cannot, and why the rules are so different between the two. I will also cover leasing versus buying, fuel VAT, mixed use, and the practical mistakes I see most often in real UK businesses.

Everything here reflects how the rules are applied in practice by HMRC and set out on GOV.UK, but explained in plain English rather than legislation.

The Short Answer

In most cases:

You cannot reclaim VAT on the purchase of a company car

You can usually reclaim VAT on the purchase of a company van

That single distinction drives almost all vehicle VAT decisions, but the detail underneath matters a great deal.

Why HMRC Treats Cars and Vans Differently

HMRC draws a very firm line between cars and vans because of private use.

Cars are assumed to have private use, even if you believe they are mainly for business. Vans are treated as working vehicles and are far more flexible for VAT purposes.

From HMRC’s point of view:

Cars are likely to be used privately

Vans are primarily tools of the trade

Because VAT is only reclaimable on costs incurred wholly and exclusively for business purposes, this assumption drives the rules.

What Counts as a Car for VAT Purposes

A car is defined as a vehicle that is designed or adapted for the private transport of passengers.

This includes:

Saloon cars

Hatchbacks

Estates

SUVs

Most dual-purpose vehicles

Even if the car has branding, is parked at business premises, or is used heavily for work, HMRC still treats it as a car.

What Counts as a Van for VAT Purposes

A van is defined as a vehicle that is primarily designed for carrying goods and has a payload of over one tonne in most cases.

This typically includes:

Panel vans

Box vans

Pick-ups with sufficient payload

Commercial vehicles

Some vehicles sit in a grey area, particularly double-cab pick-ups. In these cases, payload and manufacturer specifications matter.

Reclaiming VAT on Purchased Company Cars

This is where many people are disappointed.

In most cases, VAT on the purchase of a company car is blocked completely.

You cannot reclaim VAT on a company car if:

The car is available for any private use

The car is used by a director or employee

The car is driven home

The car is not kept exclusively at business premises

HMRC assumes private use unless you can prove otherwise.

When VAT on a Car Can Be Reclaimed

There are very limited situations where VAT on a car can be reclaimed in full.

These include where the car is:

Used exclusively for business purposes

Not available for private use at all

Kept overnight at business premises

Used only by multiple employees for business journeys

Examples might include pool cars or driving school vehicles.

In practice, these situations are rare and heavily scrutinised.

Reclaiming VAT on Leased Company Cars

Leasing changes the VAT position slightly but does not remove restrictions.

If you lease a company car:

VAT is charged on the lease payments

You can usually reclaim 50 percent of the VAT

The remaining 50 percent is blocked for private use

This 50 percent block applies regardless of actual private use. Even if you believe there is none, HMRC still applies the restriction.

If the car is used exclusively for business and you can prove it, full VAT recovery may be possible, but again this is uncommon.

Reclaiming VAT on Vans

Vans are treated far more favourably.

If you purchase a van for business use:

VAT can usually be reclaimed in full

This applies even if there is some private use

The van must be used primarily for business

HMRC accepts that incidental private use does not block VAT recovery on vans.

This makes vans far more attractive from a VAT perspective.

VAT on Leased Vans

If you lease a van:

VAT is charged on the lease payments

VAT can usually be reclaimed in full

No automatic restriction applies

This assumes the van is used for business purposes.

Mixed Business and Private Use

This is where things often become confused.

Cars

For cars, any private use usually blocks VAT recovery entirely on purchase and restricts recovery on leasing.

Apportionment is not allowed on car purchases. It is either all or nothing.

Vans

For vans, private use does not automatically block VAT recovery.

However, if private use is significant, HMRC may expect an adjustment or output VAT charge. This is assessed case by case.

VAT on Repairs and Running Costs

The rules for running costs are different from the rules for purchase.

Cars

You can usually reclaim VAT on:

Repairs

Servicing

Maintenance

Replacement parts

However, VAT on fuel for private use is restricted and usually dealt with separately.

Vans

VAT on repairs and running costs for vans is generally reclaimable in full, subject to normal business use rules.

VAT on Fuel

Fuel VAT is one of the most misunderstood areas.

Cars

If fuel is used for both business and private journeys, you have two options:

Reclaim VAT only on business mileage with records

Reclaim all VAT and apply the fuel scale charge

The fuel scale charge is a fixed VAT amount based on CO2 emissions and is often expensive.

Vans

For vans, VAT on fuel can usually be reclaimed in full if the van is used primarily for business.

If private use is significant, adjustments may be required.

Company Cars and Benefit in Kind

VAT rules do not align neatly with income tax rules.

A company car that creates a benefit in kind:

May still have restricted VAT recovery

Will usually be subject to benefit in kind tax

Requires separate treatment for VAT and payroll

Many business owners assume that because something is taxed as a benefit, VAT must be reclaimable. This is not the case.

Sole Traders vs Limited Companies

The business structure matters.

Sole Traders

Sole traders often struggle with vehicle VAT because business and personal use are closely linked.

For sole traders:

VAT on cars is usually blocked

VAT on vans is usually reclaimable

Clear records are essential

Limited Companies

Limited companies have more flexibility, particularly with vans.

However, directors’ cars are still subject to the same car VAT restrictions.

Electric Cars and VAT

Electric cars follow the same VAT rules as petrol or diesel cars.

This means:

VAT on electric company cars is usually blocked

VAT on leased electric cars is usually 50 percent recoverable

VAT on electric vans is usually reclaimable

Despite tax incentives elsewhere, VAT rules have not changed for electric cars.

Pool Cars and VAT

Pool cars are often mentioned as a way to reclaim VAT.

To qualify as a pool car:

The car must be used by multiple employees

It must not be allocated to one individual

It must not be taken home

It must be kept at business premises

If these conditions are met, VAT recovery may be possible, but HMRC will expect evidence.

Common Mistakes I See in Practice

Some of the most frequent issues include:

Reclaiming VAT on director cars incorrectly

Assuming business use equals VAT recovery

Treating cars and vans the same

Reclaiming VAT on fuel without adjustments

Poor mileage records

Ignoring private use implications

Vehicle VAT errors are easy for HMRC to identify and often costly.

Record Keeping Requirements

HMRC expects strong records for vehicle VAT claims.

You should retain:

Purchase invoices

Lease agreements

Mileage logs where relevant

Fuel receipts

Evidence of business use

Without records, VAT claims are difficult to defend.

HMRC Checks and Vehicle VAT

Vehicle VAT is a common focus in VAT inspections.

HMRC will often ask:

Who uses the vehicle

Where it is kept overnight

Whether private use exists

How VAT recovery was calculated

Clear answers and documentation make a significant difference.

When I Recommend Professional Advice

I strongly recommend advice if:

You are buying or leasing vehicles through a company

You are unsure whether a vehicle counts as a car or van

Private use exists

You are considering electric vehicles

HMRC has queried VAT previously

The cost of advice is usually far less than the cost of getting it wrong.

Practical Summary

In practical terms:

VAT on company cars is usually blocked

VAT on leased cars is usually 50 percent recoverable

VAT on vans is usually reclaimable in full

Running costs are treated differently to purchases

Fuel VAT needs careful handling

Records and structure matter

Final Thoughts on VAT and Company Vehicles

Reclaiming VAT on company cars or vans is not about fairness, it is about strict rules and assumptions. Cars are heavily restricted because HMRC assumes private use. Vans are treated more generously because they are seen as working vehicles.

My advice is always to consider VAT before buying or leasing a vehicle, not after. A simple decision at the outset can save thousands in unrecoverable VAT and prevent problems later.