Guide to Understanding VAT on Motoring Expenses for Businesses in the UK

Running a business often comes with a fair amount of travel — whether it’s heading to client meetings, picking up supplies, or delivering products. If your business uses vehicles for day-to-day operations, you’ve probably wondered how Value Added Tax (VAT) applies to your motoring expenses.

Understanding how VAT works when it comes to vehicles can save your business a lot of money and help you stay compliant with UK tax laws. But let’s be honest — VAT rules aren’t always the easiest to follow. That’s why we’ve created this simple, easy-to-read guide to help make sense of motoring expenses and VAT.

We’ll break down everything from claiming VAT on fuel to buying a company car, with lots of practical examples along the way. Let’s dive in!

What Are Motoring Expenses?

First things first — what exactly are “motoring expenses”? In HMRC’s eyes, motoring expenses refer to any costs associated with running a vehicle for your business. These can include:

• Fuel (petrol, diesel, electricity)
• Repairs and maintenance
• Insurance premiums
• Leasing or buying the vehicle
• Vehicle accessories
• Road tax and MOT tests

You can usually reclaim VAT on most of these costs — but there are rules, conditions, and limitations to be aware of. Let’s take a closer look.

Can You Claim VAT on Motoring Expenses?

In short: yes, but it depends on how you use the vehicle. VAT rules treat business use and private use differently.

For example, if you drive a car that you also use for personal errands — like picking the kids up from school or heading to the gym — you can’t always reclaim all the VAT. HMRC only allows VAT claims for the business portion of your motoring expenses.

So if you use your car 60% for work and 40% for personal use, you can only reclaim 60% of the VAT on related expenses.

Important: Keep Good Records

This can’t be stressed enough — if you want to claim VAT on motoring costs, keep a detailed mileage log. Write down when and why you’re traveling, how far you’ve gone, and whether the journey was for business or personal reasons.

VAT on Buying a Vehicle

Buying a car outright? Here’s what you need to know about VAT:

🚗 Buying a Car

Generally, you can’t reclaim VAT when buying a car, unless it’s used strictly for business purposes — and we mean strictly.

HMRC typically assumes some personal use, which makes the VAT non-recoverable. But there are exceptions, such as:

• Driving school cars with dual controls
• Taxis or hire cars
• Pool cars (shared between employees, kept at business premises only)

If your car qualifies under these rules, you may be able to claim back the full VAT.

🚐 Buying a Commercial Vehicle (vans, trucks, etc.)

Here’s the good news — VAT on vans, LCVs (Light Commercial Vehicles), and trucks is usually recoverable. That’s because these vehicles are more clearly used for business purposes.

Just remember, if the vehicle also sees personal use (like weekend trips), you’ll have to adjust your VAT claim proportionally.

VAT on Leasing a Vehicle

Short-Term Leasing (Contract Hire)

Leasing instead of buying? Then you may be able to reclaim 50% of the VAT on your lease payments — even if there’s some personal use involved.

But if the car is used strictly for business (and you can prove it), you may be able to claim up to 100% back.

Lease Purchase or HP Agreements

If you’re leasing with the intention to own the vehicle eventually (like through hire purchase), VAT treatment is a bit more complex. Usually, VAT paid on the initial deposit and recurring instalments follows similar rules to buying a car — it depends on the level of private use.

Claiming VAT on Fuel

Claiming VAT on fuel can get a bit tricky — again, the issue comes down to how much is for business and how much is for personal driving.

There Are 3 Main Options for Claiming VAT on Fuel:

• Full VAT Claim + Output Tax Charge: Claim all the VAT on fuel purchases but pay a Fuel Scale Charge, which covers VAT on personal use. It’s simple and great for businesses that use a lot of fuel.
• Business-Only Method: Claim VAT just on fuel used for work trips. Requires accurate mileage records.
• No Claim: If tracking mileage or paying the Fuel Scale Charge is too much hassle, you can choose not to claim any VAT on fuel.

The Fuel Scale Charge is a fixed fee set by HMRC depending on the type of vehicle. It simplifies accounting but may not be the most cost-effective for businesses with low private mileage.

VAT on Repairs and Maintenance

Here’s some clarity — VAT on repairs and maintenance is almost always recoverable, even if there’s some personal use involved, as long as the business owns the vehicle.

That means services like:

• Brake replacement
• Tyre changes
• Oil changes
• Scheduled MOT and repair work

Just make sure the invoice is made out to the business (not the employee), and VAT should be recoverable.

VAT on Mileage Allowance Paid to Employees

Do your employees use their own vehicles for business trips? If yes, and you pay them a mileage allowance (like 45p per mile), you may be able to reclaim some VAT on that payment.

But there’s a catch — you can only claim VAT on the fuel portion of the allowance. HMRC publishes advisory fuel rates for different engine sizes, so you’ll need to split the mileage rate and calculate how much covers fuel.

Example:

Let’s say you pay your employee 45p per mile, and HMRC says 13p of that is for fuel. If you record the number of miles and keep valid fuel receipts, you can reclaim VAT on the 13p portion.

Common Mistakes to Avoid

When it comes to VAT and motoring expenses, some common errors could cost you money — or trigger an HMRC audit.

• Not adjusting for personal use
• Forgetting to keep receipts or mileage logs
• Incorrectly reclaiming VAT on private vehicles
• Assuming all vehicle VAT can be reclaimed

Always double-check whether your claims match HMRC rules — and talk to an accountant if you’re unsure.

Tips for Staying Compliant

Here are some tips to stay on HMRC’s good side:

• Keep detailed mileage logs — ideally using apps or templates
• Retain VAT invoices and receipts
• Tailor VAT claims to the level of business use
• Use fuel scale charges if that makes calculations easier
• Review your motoring VAT claims annually

Quick Recap

By now, you should have a clearer picture of how VAT works when it comes to your business’s motoring expenses. Let’s quickly review the key points:

• You can reclaim VAT on many motoring costs, but only based on the level of business use.
• VAT on cars is usually not reclaimable unless the car is used exclusively for business (like taxis or driving schools).
• For fuel, you can claim VAT using a scale charge or only on business miles — just keep those fuel receipts!
• Vans and company trucks? You’re in luck — VAT on these is usually reclaimable.
• Mileage allowances? You can claim VAT on the fuel portion, not the full 45p per mile.

Final Thoughts

Managing your VAT on motoring expenses might not be the most exciting part of running a business — but it’s important. Getting it right helps avoid surprises down the road (pun intended) and could save your company money in the long run.

So next time you fill up the tank or book a company vehicle for service, think of this guide and how you can make the most of those VAT rules while staying compliant with HMRC.

Still have questions or need more support on the topic? You can read the full official guidance here:

https://www.gov.uk/guidance/vat-on-motoring-expenses-notice-70064