Guide to VAT on Motoring Expenses: What UK Businesses Need to Know for Compliance

Managing business expenses is hard enough without the added stress of VAT rules—especially when it comes to vehicles. If your business uses cars or vans for work, understanding how VAT works on fuel and motoring expenses is essential. Otherwise, you could end up missing out on claims or making costly mistakes. But don’t worry! In this post, we’ll break things down into simple terms to help you make sense of VAT on motoring expenses in the UK.

So, grab a cuppa, and let’s get into it!

What Is VAT on Motoring Expenses?

First, let’s start at the very beginning. VAT (Value Added Tax) is a tax you pay on most goods and services in the UK, usually at a rate of 20%. When it comes to motoring, VAT applies to things like:

• Buying or leasing a car for business use
• Fuel costs
• Vehicle repairs and maintenance
• Parking and tolls
• Hire cars and vehicles

But here’s the twist—not all VAT on motoring expenses can be claimed back. There are special rules that decide how much you can reclaim based on how the vehicle is used.

Can You Claim VAT on a Car Bought for Business?

This is where many businesses slip up. If you’re purchasing a car, your first instinct might be to claim the VAT straightaway. But hold on!

HMRC only allows you to claim back VAT on a new car if it’s used 100% for business purposes. That means no personal use whatsoever—not even popping to the shop after work. And yes, commuting to and from work counts as personal use too.

So ask yourself: Is the car only driven during work hours, by employees doing work tasks? If the answer is yes, you’re in good shape to claim full VAT. If not, you’ll need to consider alternatives.

Leased or Hired Cars

If you lease or hire a car for business, you can usually reclaim 50% of the VAT—even if the car is also used for personal journeys. Why 50%? That’s HMRC’s way of balancing business use versus private benefit.

What About Fuel?

Fuel costs can be a minefield. You have a few options here. Let’s explore them in everyday language:

Option 1: Claim All the VAT and Pay the Fuel Scale Charge

This is suitable if your business vehicle is regularly used for personal as well as business travel.

Basically, you reclaim all the VAT you paid on fuel, but in return, you agree to pay something called the fuel scale charge. It’s a set rate based on your car’s CO2 emissions and is published by HMRC.

Why do it? If your business mileage is high, the VAT you reclaim could outweigh the scale charge. But if you barely drive for work, this might not be worth it.

Option 2: Claim VAT Only on Business Mileage

This is a good choice for those who rarely mix business and personal travel.

Let’s say you keep detailed mileage records and fuel receipts. You can then work out what percentage of your fuel is used for business and only claim VAT on that portion.

Example: You spend £1,000 on fuel and estimate 70% is for work. You can then claim VAT on £700.

Option 3: Don’t Claim Any VAT on Fuel

Sometimes, the easiest route is to skip the claim altogether—especially if your business travel is occasional or admin time is tight. No claim, no scale charge, no complications.

Repairs, Maintenance, and Other Costs

The good news is that you can usually claim back 100% of the VAT on repairs and maintenance for a business vehicle, even if your employee has used it for personal trips.

This includes things like:

• Replacement tyres
• Oil changes
• General servicing

Just make sure the invoice is in the business’s name and the vehicle is being used by the company.

What About Parking and Tolls?

These aren’t always top of mind, but they count too! If you pay for parking while on a business trip or pass through tolls, you can claim VAT back—as long as the parking operator is VAT-registered and gives you a valid VAT invoice.

Using Your Own Car for Business Travel

Plenty of small business owners and employees use their personal car for work journeys. So how does VAT work in this case?

If you reimburse an employee using the set HMRC mileage allowance (for example, 45p per mile), most of that is tax-free. But, you may be able to reclaim a small portion of VAT on the fuel element of each mile driven.

To do this, you’ll need:

• Mileage records
• Fuel VAT receipts

HMRC publishes advisory fuel rates you can use to calculate how much VAT to reclaim. Just be prepared to do some number crunching! Or better yet—use accounting software that includes mileage tracking.

Keeping Records: The Golden Rule

Whether you’re claiming VAT on fuel, maintenance, or business mileage, solid record-keeping is crucial. If HMRC comes calling, you’ll want to have:

• Valid VAT invoices
• Mileage logs
• Breakdowns of business vs. personal use

Trying to claim VAT without evidence is like trying to get into a concert without a ticket—it’s just not going to happen.

Some Final Tips for VAT on Motoring Expenses

Feeling a bit more confident? Great! But before you go, here are a few golden nuggets to remember:

• Only claim VAT when you’ve got proof—receipts and mileage logs are essential.
• Track personal vs. business use—especially if cars are shared or used outside office hours.
• Use the fuel scale charge calculator on HMRC’s website to stay up-to-date.
• Review VAT on motoring expenses regularly—your driving patterns may change over time.

Why This Matters

You might be wondering, “Is all this effort worth it?”

The answer is a big YES. VAT can add up to a significant amount over the year, especially if your business relies on transport. By understanding the rules and claiming correctly, you get back what’s rightfully yours while staying compliant with HMRC.

On the flip side, getting it wrong could mean penalties, interest, or rejected claims. So, spend a little time now to save your business money later—it’s a smart move.

In a Nutshell

Here’s the quick-recap version:

• You can only claim full VAT on cars used solely for business.
• Leased or hired cars usually allow 50% VAT recovery.
• Fuel VAT can be claimed using the fuel scale charge or based on business mileage.
• Repairs and maintenance for business vehicles are usually fully claimable.
• Use of private cars for business travel may allow partial VAT recovery on fuel.

Understanding VAT on motoring expenses gets easier when you break it down. Think of it like assembling a puzzle—each piece matters, but everything fits better when you see the full picture.

Still have questions? Want to double-check the latest rules from HMRC? Here’s the official source:

Read More: VAT on Motoring Expenses (HMRC Official Guidance)