Guide to VAT on Motoring Expenses: What Businesses Need to Know and How to Claim

Introduction: Your Roadmap to Reclaiming VAT on Motoring Costs

Running a business often involves wheels—company cars, vans, or even reimbursing employees for travel. But did you know you can reclaim VAT on many of those motoring costs? If you’ve ever scratched your head wondering how VAT applies to fuel, repairs, parking, or leasing, you’re not alone.

This guide will help you understand how VAT on motoring expenses works, what you can (and can’t) claim, and how to make sure you stay on the right side of HMRC rules. Let’s break it down in plain English.

What Is VAT on Motoring Expenses?

VAT, or Value Added Tax, is a tax paid on most goods and services in the UK. As a VAT-registered business, you can usually reclaim the VAT you pay on expenses that are directly related to your business operations. That includes many motoring expenses, such as:

• Fuel
• Vehicle leasing
• Maintenance and repairs
• Vehicle accessories
• Toll charges and parking

Sounds good, right? But of course, there are rules. Not every expense is eligible, and how you use the vehicle—business vs. private use—matters a lot.

1. VAT on Fuel Expenses

Fuel is one of the biggest motoring costs for businesses. The rules for VAT on fuel depend on who’s using the vehicle and how it’s being used.

Business Use Only

If a vehicle is used only for business—no weekend getaways or school runs—then you can reclaim all the VAT on the fuel. You’ll need to keep detailed mileage logs and receipts to prove this.

Mixed Use (Business and Private)

Now, if you (or your employees) use the vehicle for both business and personal journeys, the situation gets a bit trickier. HMRC offers three options:

• Claim all the VAT and pay the appropriate fuel scale charge (a set amount based on the vehicle’s CO2 emissions).
• Claim part of the VAT based on actual business use.
• Don’t claim any VAT on fuel if you want to avoid the scale charge.

Think of the fuel scale charge like a balancing act. You save on VAT but give some back to HMRC via this set fee.

Practical Tip:

If your business mileage is low or unpredictable, it might not be worth claiming the VAT on fuel at all. Sometimes simpler is better.

2. Leasing and Buying Vehicles

Leasing a Vehicle

If your business leases a car, you can reclaim 50% of the VAT on the lease payments. Why not all of it? Well, it’s assumed the car will be used for both business and private purposes.

However, if the car is strictly for business use (and you have the records to prove it), you can reclaim the full 100% of the VAT—though HMRC will likely want strong evidence.

Buying a Vehicle

Reclaiming VAT on a car you buy outright is tougher:

• You can only reclaim the VAT if the car is used 100% for business purposes.
• No private use allowed—not even a single school drop-off.

Because that’s hard to prove (and enforce), most businesses don’t reclaim VAT when buying cars. However, if it’s a van or other commercial vehicle, you’re usually in the clear to reclaim the full VAT.

3. Maintenance, Repairs, and Accessories

Here’s some good news: You can usually reclaim VAT on maintenance and repair costs, even for vehicles with mixed business and private usage. These could include:

• Servicing
• Brake replacements
• New tyres
• Spare parts

It doesn’t matter whether the vehicle is owned or leased. And even if an employee uses the car privately, the VAT on repairs and maintenance can still be reclaimed (so long as your business pays the bill).

Accessories and Add-Ons

Need to add a roof rack, phone holder, or in-car GPS? If the accessory is necessary for business operations, you can often claim the VAT as well.

4. Reimbursing Employees for Mileage

If employees use their own car for work and you reimburse them using the HMRC approved mileage rates (e.g., 45p per mile), you can claim back VAT on the fuel portion of that rate.

But here’s the key: You must get a VAT receipt for the fuel from the employee and work out the fuel-only part of the mileage rate using HMRC’s Advisory Fuel Rates.

Example:

If your employee drives 100 miles and your rate is 45p per mile (total £45), the fuel portion might be 14p per mile. You could claim VAT on £14, but only if they provide a fuel receipt.

Little details like this can add up to major savings over the year!

5. Parking, Toll Roads, and Congestion Charges

Did you know you can reclaim VAT on lots of travel-related costs too?

• Car parking fees usually include VAT—so yes, they’re claimable.
• Toll roads and bridge charges are often VAT-inclusive.
• Congestion charges, like in London, typically don’t include VAT—so you can’t claim anything back.

Always check your receipts or invoices to see if VAT is charged before trying to reclaim it.

What You Can’t Claim VAT On

HMRC is clear about a few “no-go zones.” Here are some expenses where VAT claims aren’t allowed:

• Routine commuting between home and work
• Fines (parking tickets, speeding, etc.)
• Cars purchased mainly for private use

Private use is a biggie here. If your business vehicles double as personal vehicles, full VAT claims are off the table in most cases.

Tips for Making Your VAT Claims Stick

Want to avoid trouble if HMRC pays you a visit later? Then put these good habits into practice:

1. Keep Accurate Records

• Save all invoices and VAT receipts.
• Log mileage for business trips.
• Note who used each vehicle and when.

2. Separate Business from Private Use

If a vehicle is used only for business, label it clearly and ensure it’s not available for personal travel. This makes it easier to support your VAT claims.

3. Use VAT Accounting Software

Digital VAT records are a requirement under Making Tax Digital (MTD). Make sure you’re using VAT-compatible software to track and file returns.

Don’t Miss Out: Why This Matters

Reclaiming VAT on motoring expenses could save your business thousands over the year. But the rules can be a bit bumpy, especially when private use comes into play.

A small business using two company vehicles and spending £10,000+ a year on motoring expenses could be eligible to reclaim £1,666 (assuming a 20% VAT rate). That’s not small change!

Final Thoughts

Understanding VAT on motoring expenses might not be the most exciting part of running a business, but it can have a big impact on your bottom line. By keeping good records, knowing what’s claimable, and using the right VAT treatment for each situation, you’ll avoid overpaying—and have peace of mind come tax time.

So, take a closer look at your fuel receipts, lease agreements, or employee mileage claims. Are you reclaiming everything you’re entitled to?

It’s time to steer your VAT strategy in the right direction.

Read More

For the full HMRC guidance and detailed scenarios, visit:
https://www.gov.uk/guidance/vat-on-motoring-expenses-notice-70064