Guide to Understanding VAT on Motoring Expenses and Reclaim Rules for UK Businesses

For many UK businesses, cars and vans are essential tools for daily operations. Whether you’re a small business owner doing local deliveries or a contractor commuting to job sites, motoring expenses can add up quickly. But did you know that you might be able to reclaim VAT on these motoring costs? Understanding the rules can save your business money—but it’s easy to get confused along the way.

In this guide, we’ll break down everything you need to know about VAT on motoring expenses, from what you can claim to the rules for different types of vehicles. Don’t worry—we’re keeping things simple and jargon-free.

What Are Motoring Expenses?

Let’s start with the basics. Motoring expenses are the costs you rack up while using vehicles for business purposes. This could include:

• Fuel (petrol, diesel, or electric charging)
• Maintenance and repairs
• Vehicle insurance
• Leasing or purchasing cars and vans
• Parking and tolls

These might seem like everyday costs, but if your business is VAT-registered, there’s a chance you can claim back some (or even all) of the VAT on these items. Sounds promising, right? But as always, there are rules.

Can You Reclaim VAT on Business Motoring Costs?

Yes – but with conditions. Here’s the thing: not all motoring expenses qualify for VAT reclaims. Additionally, HMRC wants to make sure that you’re not mixing personal and business use unfairly.

So, how can you tell what qualifies? Let’s dive deeper.

1. Fuel VAT – Claiming Back What You Spend

If you use fuel for business trips, you may be able to reclaim the VAT you paid at the pump. There are three key options here:

• Claim 100% of VAT and pay a Fuel Scale Charge: If you use the vehicle for both business and personal trips, this might be your route. The Fuel Scale Charge is a standard fee you pay back to HMRC. It’s kind of like a flat-rate repayment for personal use.
• Reclaim only the VAT on business mileage: This is great if you track your mileage. You’ll just need to keep good records to prove how many miles were for work.
• Don’t reclaim any VAT at all: Not fun, but sometimes it’s less hassle, especially for very small businesses or those with minimal driving.

Example: Let’s say you spend £100 on diesel, including £15 of VAT. If you use your van 70% of the time for business and 30% for personal errands, you could reclaim £10.50 of that VAT—if you’ve been tracking business use properly.

2. Buying a Car or Van – How VAT Works on Vehicle Purchases

Thinking of buying a car for your business? Here’s where it gets tricky.

Reclaiming VAT on a car: HMRC is very strict here. You can only reclaim the VAT if:

• The car is used solely for business purposes
• It’s not available for any private use—even driving to and from work counts as personal

Truthfully, it’s hard to prove there’s absolutely no private use. Because of that, most businesses can’t reclaim VAT on car purchases unless it’s a pool car (one shared by employees that stays on-site outside of working hours).

Reclaiming VAT on a van or commercial vehicle: Different story! Vans and certain commercial vehicles are treated more flexibly. If they’re mainly used for business, you’ll likely be able to reclaim the purchase VAT.

3. Lease Payments – How VAT Affects Leased Vehicles

If you lease rather than buy a vehicle for your business, here’s what you need to know:

• For cars: You can usually reclaim 50% of the VAT on lease payments. Why only half? Because of the assumption that there’s personal and business use mixed in.
• For vans: You can typically reclaim 100% of the VAT—again, because they’re mostly business-related in the eyes of HMRC.

Remember: If you’re leasing a car strictly for business with no private use, you might be able to claim back all the VAT. But you’d better have strong documentation!

4. Repairs and Maintenance – Reclaiming VAT Made Easy

Here’s a bit of good news: VAT on repairs and servicing a vehicle used for business can usually be reclaimed—even if the vehicle is used privately, too. That includes things like:

• Routine servicing
• Tyre replacements
• Engine repairs

Note: This applies regardless of who owns the car—you or your employee. If it’s used for business, you can typically reclaim the VAT on those expenses.

5. Road Fuel and Mileage Allowances for Employees

Paying your team for using their personal vehicles? You can still reclaim some VAT, even though the vehicle isn’t owned by the business.

When you pay employees a mileage allowance, like the HMRC-approved 45p per mile, you can reclaim the VAT on the fuel portion of that payment. You’ll need a VAT receipt from the employee and a good idea of how much of that mileage rate relates to fuel.

This can seem fiddly, but over time, it adds up!

How to Reclaim VAT on Motoring Expenses

To reclaim VAT properly, there’s one golden rule: keep good records. HMRC won’t take your word for it—they need proof.

Here’s what you’ll need:

• VAT invoices or receipts with the supplier’s VAT number
• Mileage logs for fuel reclaims based on business use
• Lease or purchase agreements for vehicles
• Proof of business use, especially for mixed-use vehicles

Then, you’ll include these expenses in your VAT return. If you use software like QuickBooks or Xero, this process becomes a lot easier since it keeps digital records automatically.

Common Mistakes to Avoid

Let’s be honest—navigating VAT can be like walking through a maze. Here are some common pitfalls businesses make when dealing with motoring costs:

• Failing to track mileage properly: No logs? No claim. Keep a simple record—even a spreadsheet works.
• Reclaiming VAT on private use: This is a red flag for HMRC. Make sure you’re only claiming business-related expenses.
• Losing receipts: You need VAT-specific receipts to reclaim. Card statements won’t cut it.

Tips to Stay on the Right Side of HMRC

• Use a mileage tracking app – Tools like MileIQ or TripLog make this super simple.
• Set a clear company policy on company car use and track personal/business mileage separately.
• Review HMRC’s Fuel Scale Charge rates regularly – these change yearly.

If you’re working with an accountant, ask them to review your VAT claims, especially if you operate a mixed-use fleet. It’s always better to double-check than face a penalty down the line.

Final Thoughts: Is Reclaiming VAT on Motoring Expenses Worth It?

Absolutely—if you do it correctly.

While the rules around reclaiming VAT on motoring expenses might feel overwhelming at first, once you understand the basics and set up a solid tracking system, it becomes second nature. For small businesses trying to save every pound possible, this is definitely an area worth revisiting.

Still unsure about something? Every case is different, and sometimes a five-minute chat with an accountant or checking HMRC’s latest guidance can make all the difference.

Want to learn more straight from the source? You can check the full official guidance from HMRC here: https://www.gov.uk/guidance/vat-on-motoring-expenses-notice-70064