Leasing a car – how much VAT can you reclaim?

With a few exceptions, reclaiming VAT paid on the purchase of a car is notoriously difficult. By comparison though, the VAT position for leasing and similar contracts is more relaxed.

Nicola Roby, Director at CHW explains exactly what you are entitled to reclaim?

HMRC’s view

HMRC rigorously polices the rule that the VAT paid on the purchase of a car cannot be reclaimed if there’s any private use at all. Cars used as taxis or as driving school vehicles are exceptions, although you may need to account for VAT for any private use.

However, the so-called VAT block on cars doesn’t apply to leased cars and, since June 2019, purchases on similar terms using personal contract purchases (PCPs).

The 50/50 rule

Where you lease or buy a car using a qualifying PCP, with the intention that it will be and is used by you or an employee of your business, you can reclaim 50% of the VAT charged on the lease payments.

The percentage you can reclaim is not affected by the amount of private use of the car. As long as there is some business use, 50% of the VAT charged by the leasing company can be reclaimed.

Lease or purchase?

It can be difficult (especially since the changes made in June 2019) to determine whether a contract is of the type which will entitle you to reclaim the VAT. The easiest way to check is to look at the invoices/requests for payment you receive from the finance company. As a rule of thumb, if the payments you make include an amount for VAT you can reclaim 50%. If it doesn’t, you might need to look more closely at the paperwork. If you’re still unsure of the VAT status, phone the finance (leasing) company and ask for clarification.

Don’t be misled by paperwork

Finance companies often issue a VAT invoice once a year in advance and show all instalments due over that period. In the interim they might send you requests for payment or payment receipts which don’t show VAT. You might, therefore, assume that you haven’t been charged VAT and as a result not claim what you’re entitled to. Therefore, ensure you obtain a VAT invoice for your payments at least once a year.

VAT on extras – claiming more than 50%

You could be entitled to claim more than 50% of the VAT charged for additional costs included in your lease or PCP payments.

The 50% rule doesn’t apply to maintenance charges included in a lease or PCP that cover servicing and wear and tear costs if they are shown separately on the invoice/demand for payment. An HMRC concession means that you’re entitled to reclaim 100% of VAT paid on separately-charged amounts for maintenance/services etc. This applies even there is private use of the car by you, your family or an employee.

You can also reclaim 100% of the VAT you pay where your business arranges and pays for the cost of the servicing, etc. Again, this isn’t affected by any private use of the car.

In summary

You can reclaim 50% of the VAT charged on lease rental payments regardless of the level of private use. If the leasing company charges you separately for maintenance you can reclaim 100% of the VAT in respect of this. The amount you can reclaim in both situations is not affected by private use of the car. This can make leasing an attractive alternative to purchasing for some. For more advice contact us.


This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.

DID YOU FIND THIS USEFUL?

Share it with your network:  

Want more great content?
Sign up to our newsletter

Follow us

Tweets by @CHW-accounting

CHW-Accounting
@chw-accounting


Twitter: chw_accounting

Read enough?

Want to find out how we can help you and your business? Get in touch today and let's have a chat.

WHAT'S THE NEWS?

Grab a biscuit and a brew and read our latest news.

27 November 2019

A brief guide to claiming structures and buildings allowance

by

HMRC recently published new guidance on the structures and buildings allowance (SBA) following changes to the rules. This includes important information about how to claim it.


Read more >

18 November 2019

Leasing a car – how much VAT can you...

by

With a few exceptions, reclaiming VAT paid on the purchase of a car is notoriously difficult. By comparison though, the VAT position for leasing and similar contracts is more relaxed.


Read more >

11 November 2019

HMRC Enquiries – beware if you have a cash...

by

Even in this digital age some businesses remain heavily reliant on cash transactions. HMRC views these as high risk and as a result targets cash businesses with VAT enquiries, using special techniques to justify investigating them.


Read more >

6 November 2019

Did Making Tax Digital for VAT (MTDfV) pass its...

by

The first big deadline for MTDfV is history and whilst there was a fairly high failure rate, it was not as bad as originally feared.


Read more >

29 October 2019

Business property relief (BPR) don’t let it disappear

by

BPR shelters the value of your business from the HMRC. The trouble is though, when you retire from your unincorporated business, the relief disappears immediately. CHW explain how you can preserve it.


Read more >

YOUR CHALLENGES

No matter what your challenge is, we’ve probably dealt with it before.



Need an Accountant?

Get in touch >


Need an Accountant?

Get in touch >


Tax issues?

Find out more >


Tax issues?

Find out more >


Trying to grow your business?

We can help >


Trying to grow your business?

We can help >


Managing cashflow?

We can help >


Managing cashflow?

We can help >


Starting a business?

We can help >


Starting a business?

We can help >


Looking for funding?

Need help with funding? >


Looking for funding?

Need help with funding? >


Buying or selling a business?

We can help >


Buying or selling a business?

We can help >


Adopt the cloud?

We can help >


Adopt the cloud?

We can help >


What else can we do for you?

We can help >


What else can we do for you?

We can help >
CONTACT US

Get in touch, no hard sell, just a brew, a biscuit and a chat.