Guide to Claiming VAT on Motoring Expenses: What UK Businesses Need to Know
If you’re a business owner in the UK, chances are you’re always looking for ways to cut down costs and boost your bottom line. Well, here’s a tip that could help: understanding how to reclaim VAT on motoring expenses could save your business a tidy sum.
Whether you use vehicles for deliveries, client meetings, or general business travel, VAT is probably lurking in your fuel receipts, car purchases, and insurance. But how much of it can you actually claim back? And what rules do you need to follow?
Let’s break it all down in simple terms so you’ll know exactly what you’re entitled to—and avoid any run-ins with HMRC.
What Is VAT on Motoring Expenses?
VAT (Value Added Tax) is a tax added to goods and services in the UK. Most businesses registered for VAT can reclaim the VAT they pay on purchases used for business purposes—including motoring costs.
When we talk about motoring expenses, we mean costs related to:
- Buying or leasing vehicles
- Fuel costs
- Maintenance and servicing
- Insurance and road tax
- Parking and toll charges
But—and here’s where it gets tricky—not all of these expenses are treated the same way when it comes to reclaiming VAT.
What Can You Claim VAT Back On?
1. Buying a Car
You might think, “Great, I bought a business car—I can reclaim the VAT!” Not so fast. HMRC takes a stricter approach here.
You can only reclaim VAT on the purchase of a car if it’s used exclusively for business purposes. That means:
- You don’t drive it home.
- You don’t use it for school runs or popping to the shops.
- You’ve restricted personal use, and it’s documented.
If your employees are allowed to use the car for personal errands—even occasionally—you won’t be able to reclaim the VAT.
2. Leasing a Car
Leasing instead of buying? You’re in luck. If the leased vehicle is used for both business and private use, you can normally reclaim 50% of the VAT.
If you can prove it’s used only for business (again, that means no personal use at all), then you may be able to reclaim 100% of the VAT.
3. Fuel Costs
Now fuel is where things can get foggy. Just remember this—HMRC gives you three routes. Think of it like choosing from a menu:
- Claim all the VAT with a fuel scale charge: You reclaim all the VAT on fuel but pay a charge based on the car’s CO2 emissions. This only works if personal use is involved.
- Claim only fuel used for business: Keep a log or mileage records and only claim the VAT portion related to work trips.
- Don’t claim VAT at all: Easiest option if you can’t keep accurate records or if personal use is significant.
Example: Say you use your car 75% of the time for business and 25% for personal use. You’d only reclaim 75% of the VAT on fuel.
4. Repairs and Maintenance
This one’s a bit more straightforward. If the vehicle is used for business, you can reclaim 100% of the VAT on repairs and maintenance.
Even if the car is partly used for personal reasons, you can still claim all the VAT—so long as the business use is legitimate. This is because repairs are treated separately from how the vehicle is used.
5. Insurance, Road Tax, Parking, and Tolls
Here’s where HMRC draws the line:
- Insurance and road tax: Sorry—no VAT to reclaim here. These aren’t VAT-rated.
- Parking: If you pay for public parking as part of your business activities, and it includes VAT, you may be able to reclaim it.
- Toll roads and congestion charges: If VAT was charged (usually shown on your receipt), you can claim it back.
What About Mileage Allowance?
If employees or directors use their own car for work and claim mileage allowance instead of fuel, you can still claim VAT—but only a portion.
Let’s break it down:
- The mileage rate (like 45p per mile) includes fuel, wear-and-tear, insurance, etc.
- You can only reclaim the VAT on the fuel portion—not the entire 45p.
- Refer to HMRC’s advisory fuel rates to find the correct amount.
So if 15p per mile represents the fuel, you’d calculate the VAT on just that part.
How to Reclaim VAT on Motoring Expenses
To reclaim VAT, your business must be VAT-registered and have proper records.
Here’s what you’ll need:
- VAT invoices: Makeshift receipts or credit card slips won’t do. You need formal VAT invoices showing VAT breakdown.
- Mileage logs: For mileage and fuel claims.
- Leasing agreements: To prove personal vs business use.
- Service records: To back up repairs and maintenance expenses.
Each VAT return period, just include these expenses when you submit your return through HMRC’s online VAT service or your accounting software.
Pro Tip:
Keep everything organized. Create separate folders for fuel, repairs, and leasing receipts. It’ll make life much easier when HMRC (inevitably) checks in on your records.
A Quick Recap: What You Can and Can’t Claim
- Car Purchase: Only if used 100% for business
- Leased Cars: Usually 50%, up to 100% with no personal use
- Fuel: Depends on personal use and documentation
- Repairs: Fully claimable
- Insurance/Road Tax: No VAT reclaimable
- Parking/Tolls: Depends if VAT was charged
- Mileage Claims: Only reclaim VAT on fuel element
Common Pitfalls to Avoid
Let’s pause here and look at some real-world examples where things can go wrong:
- No proper receipts: HMRC doesn’t accept bank statements alone.
- No mileage records: Without logs, you might not be able to justify a claim.
- Mixing business with personal: If you can’t separate personal from business use, your claim might be denied.
If in doubt, ask your accountant for guidance—or double-check HMRC’s rules yourself.
Why It’s Worth Taking the Time
Claiming VAT on motoring expenses might seem like a headache at first. But consider this—if your company spends £5,000 a year on fuel, that’s roughly £833 in VAT. Imagine what you could do with that money instead!
And when you multiply VAT savings across fuel, leasing, and maintenance, the benefits add up quickly—especially for companies with sales reps, delivery fleets, or mobile engineers.
Final Thoughts
Navigating VAT on motoring expenses doesn’t have to feel like you’re lost on the M25 with no sat nav. Yes, the rules can seem a bit twisty at first. But with care—and a bit of record keeping—you can confidently reclaim what your business is owed.
Still got questions? You’re not alone. This is one area where lots of businesses slip up. Don’t hesitate to seek advice from a VAT specialist or your accountant if something doesn’t seem clear.
For those who want all the nitty-gritty details straight from the source, here’s the HMRC’s official guidance: