Motor Expenses and VAT

Most VAT registered traders will be aware that you cannot reclaim the VAT when you buy a car. The only exceptions are businesses that use cars directly to generate income: for example a taxi firm.

The VAT position of motor expenses for cars owned by the business is slightly more complex.

As most business cars are used for private as well as business purposes you are only entitled to effectively claim back the VAT on the business use. Registered traders therefore have four choices:
1.    Reclaim all the input tax on fuel purchases and pay a car scale charge as output tax to HMRC to cover private use. The amount of the scale charge depends on the CO2 emissions of the vehicle.
2.    Keep mileage records that show business and private use and apportion your claim for input tax on fuel.
3.    Rather than the apportionment method (2 above) it is possible to use HMRC’s published fuel rates per mile to calculate the VAT input tax included in fuel costs. To do this multiply business mileage by the appropriate fuel mileage rate and apply the VAT fraction (1/6).
4.    Elect to make no claim to recover input tax on all fuel for mixed use vehicles. You would do this if the output tax scale charge at 1 above is more than the input tax recoverable or if you don’t keep the mileage records as set out in 2 above. Please note that if you choose this option you must apply it to all vehicles (including commercial vehicles).

Car Repairs and Servicing
As long as the car is owned by the business and the costs are paid for by the business all the input tax can be recovered. The only exception is if a car is never used for business purposes in which case no VAT can be reclaimed.

Advisory Fuel rates for Company Cars
Many employers and employees make use of the advisory fuel rates published by HM Revenue & Customs.  The rates apply where the employer:

• reimburses employees for business travel in company cars where the employer does not provide fuel, or,
• requires employees to reimburse the cost of employer provided fuel used for private travel, so potentially avoiding a private fuel benefit charge.

The advisory fuel rates are also acceptable for VAT purposes providing VAT receipts for fuel purchases are retained.
The rates have changed with effect from 1 March 2012. The new rates are on the link below. Please note that HMRC no longer gives a month's notice in this regard.

Currently HM Revenue & Customs reviews the rates at least twice a year.  Please click on the following link for more information:

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