Can I Reclaim VAT on Company Cars or Vans

The difference between a car and a van for VAT purposes

Before you can determine whether VAT can be reclaimed, you need to know whether HMRC classifies your vehicle as a car or a van.

A car is generally defined as a motor vehicle designed primarily for the transport of passengers. A van is designed to carry goods or equipment and has no permanent rear seats.

This distinction matters because the rules for reclaiming VAT are far stricter for cars than for vans.

Reclaiming VAT on company cars

In most cases, VAT on the purchase of a car cannot be reclaimed, even if the car is used for business. HMRC assumes that all company cars have some degree of private use, such as commuting or personal travel.

However, there are a few limited exceptions where VAT can be reclaimed in full.

When VAT can be reclaimed on a car

You can reclaim VAT on a company car only if:

The car is used 100% for business purposes, and

There is no private use at all, not even commuting, and

The car is kept at the business premises when not in use.

Examples of situations where this might apply include:

A pool car that is shared among employees for business trips only and is not taken home.

A demonstration car used solely for test drives by a motor trader.

A taxi or driving school vehicle, where the car is used exclusively for the business.

In all cases, you must keep detailed evidence that the car is not used privately, such as mileage logs, insurance documents, and clear company policies.

Partial VAT recovery on car leases

If you lease a car rather than buying it, you may be able to reclaim 50% of the VAT on the lease payments.

This rule recognises that leased cars are typically used for both business and private journeys. The remaining 50% is blocked because of the assumed personal use.

If the car is used solely for business and there is no private use, you can reclaim 100% of the VAT on the lease, but you must be able to prove this to HMRC.

You can also reclaim VAT on maintenance and service charges in full, provided these costs relate to business use.

VAT on fuel for company cars

If your business pays for fuel for both business and private use, you cannot reclaim all the VAT unless you charge employees for private fuel.

Instead, HMRC allows you to use a fuel scale charge, which is a flat rate based on the car’s CO₂ emissions. This simplifies the process but reduces the total amount of VAT you can reclaim.

If the business only pays for business mileage and employees reimburse the company for private fuel, you can reclaim VAT in full on the business-related fuel costs.

Reclaiming VAT on company vans

The VAT rules for vans are much more generous than those for cars because vans are considered commercial vehicles.

You can usually reclaim all the VAT on a van if it is used primarily for business purposes. Unlike cars, HMRC does not automatically assume that a van is used privately.

However, if the van is used significantly for personal journeys, you may need to apportion VAT recovery between business and private use.

When you can reclaim VAT in full on a van

You can reclaim all VAT on the purchase of a van if:

The van is used mainly for business purposes such as deliveries, site visits, or transporting tools.

Any private use is minor or incidental (for example, driving home occasionally).

You keep accurate records of mileage and business journeys.

For leased vans, you can reclaim 100% of the VAT on rental payments if the van is used only for business, and part of it if there is mixed use.

You can also reclaim VAT on maintenance, insurance, and running costs if they relate to business use.

Buying a vehicle under the margin scheme

If you buy a second-hand car or van from a dealer operating under the VAT margin scheme, you will not be charged VAT on the sale, so there is no VAT to reclaim.

However, if VAT was charged separately on the invoice (for example, from a VAT-registered seller who is not using the margin scheme), you can reclaim it if the vehicle meets the business-use criteria.

Keeping records for VAT purposes

To reclaim VAT correctly, you must keep detailed records showing how and when the vehicle is used for business. This includes:

Purchase or lease agreements

VAT invoices from the supplier

Mileage logs for each vehicle

Details of private versus business journeys

Records of fuel and maintenance costs

If HMRC inspects your business and finds that a vehicle has been used privately without proper documentation, they can disallow the VAT claim and issue penalties.

Input VAT on vehicle running costs

Even if you cannot reclaim VAT on the purchase of a car, you can usually reclaim VAT on related running costs such as repairs, maintenance, and servicing, provided the vehicle is used for business.

This also applies to tyres, oil, and accessories, as long as you have VAT receipts and can demonstrate that the costs were incurred for business purposes.

VAT on electric vehicles

Electric vehicles are treated in the same way as petrol or diesel vehicles for VAT purposes. You can reclaim VAT on an electric car only if it is used solely for business.

However, if you install electric charging points at your business premises, you can reclaim VAT on the installation and ongoing electricity costs that relate to business use.

If employees charge their own electric vehicles at the workplace, the electricity used for private vehicles is not eligible for VAT recovery.

How to reclaim VAT

You reclaim VAT on vehicles and related expenses through your regular VAT return. Include the relevant input VAT in the appropriate box, supported by valid VAT invoices.

If your business is partially exempt (meaning it makes both taxable and exempt supplies), you must apply partial exemption rules to determine how much VAT can be recovered.

When to seek professional advice

VAT on vehicles is one of the most closely scrutinised areas of tax compliance. The difference between a car and a van, or between business and private use, can have major financial implications.

A qualified accountant can help you:

Determine whether your vehicle qualifies for VAT recovery.

Keep accurate records to defend your claim.

Structure vehicle ownership or leasing arrangements in a tax-efficient way.

Getting expert advice before purchasing or leasing a vehicle can prevent unexpected VAT bills later on.

Final thoughts

You can reclaim VAT on company vans used for business, but reclaiming VAT on company cars is much more restrictive. Unless a car is used exclusively for business, the VAT on its purchase is blocked. Leased cars allow partial recovery, and running costs may still qualify.

For vans and other commercial vehicles, VAT can usually be reclaimed in full if business use is clear and well documented.

Keeping accurate records and understanding HMRC’s definitions of business use are essential. With the right advice and documentation, your business can make the most of legitimate VAT reliefs while staying fully compliant.