Guide to Understanding VAT on Motoring Expenses for UK Businesses and Sole Traders
Running a business often means you’re clocking up miles on the road — whether you’re visiting clients, delivering goods, or just popping to the office cash and carry. But did you know that some of the costs linked with using a vehicle for business could let you claim back VAT? Understanding VAT on motoring expenses can seem complicated at first, but don’t worry — we’ll break it down into simple terms, just like a helpful professor explaining it in class.
In this guide, we’ll walk you through how VAT (Value Added Tax) works on motoring expenses for UK businesses and sole traders. Whether you run a small business or work for yourself, knowing the rules can help you claim what you’re entitled to and avoid mistakes.
What Is VAT and Why Does It Matter with Vehicle Costs?
Let’s start with the basics. VAT is a tax that’s added to most goods and services in the UK. If your business is VAT-registered, you can usually claim back the VAT you’ve paid on business-related expenses — and that includes certain motoring costs.
But—and this is important—just because you use your car for business doesn’t automatically mean you can reclaim all the VAT on things like fuel or repairs. The rules can be a bit different depending on:
- Whether you own or lease the vehicle
- If it’s used solely for business or also for personal trips
- The type of motoring expenses involved
Types of Motoring Expenses You Might Incur
Everyday vehicle-related costs can quickly add up. Fortunately, HMRC allows you to potentially reclaim VAT on some of these, as long as certain conditions are met. These are the major ones to be aware of:
- Fuel – petrol, diesel, charging electric vehicles
- Repairs and maintenance – servicing, tyres, etc.
- Car leasing costs – including monthly payments
- Vehicle purchase – though strict rules apply
- Accessories – if fitted for business use
Let’s explore these a little more closely, so you know what you can (and can’t) claim.
1. Claiming VAT on Fuel
This one trips up a lot of people. You can claim back VAT on fuel, but only the part used for business purposes. If you use your car for both business and personal reasons (which most people do), you have three options:
Option 1: Keep Fuel Logs
Keep a mileage log to show what % of your driving is for work. You can then claim that % of VAT on your fuel receipts.
Option 2: Flat-Rate Fuel Scale Charge
Instead of tracking every journey, HMRC offers something called the fuel scale charge. It’s a fixed rate based on CO2 emissions of your car. This method is handy because:
- You can claim 100% of the VAT on fuel
- But you also have to pay a monthly charge to HMRC to cover private use
It works better if most of your driving is for business. If it’s mostly personal use with a few business miles, this might not be worth it.
Option 3: Don’t Claim at All
Yes, you can simply not claim VAT on fuel. It might save you admin if your business use is minimal.
2. VAT on Vehicle Repairs and Maintenance
Good news — you can usually reclaim the full VAT on repairs and maintenance costs, even if the vehicle is used personally as well. This includes:
- Servicing
- Tyres
- Brake pads
- Replacement parts
Here’s the catch: the garage must give you a VAT invoice, and the work must be for a vehicle used in your business. Personal cars that never serve business purposes don’t qualify.
3. Leasing a Vehicle for Business
If you lease a vehicle, you’re usually allowed to claim back 50% of the VAT on the lease payments. Why only 50%? Because HMRC assumes you’ll use it both for work and play unless it’s strictly a business vehicle.
But there’s a bonus: You can still claim 100% of the VAT on maintenance charges that come with the lease. Just keep good records to back everything up.
4. Buying a Vehicle — A Tougher VAT Claim
This one is a bit trickier. Normally, you can’t reclaim VAT on buying a car — unless it’s used exclusively for business. And by “exclusively,” HMRC means:
- No commuting
- No popping to the shops
- No friends and family lifts
If you can prove it’s only for business (like a pool car or van parked at work that employees use), then you might get all the VAT back. Otherwise, it’s considered a mixed-use vehicle, and VAT is off-limits.
5. Accessories and Business Upgrades
Need to add tools to your van or tracking devices for business? You can claim VAT for accessories and modifications if they’re solely for business use. For example:
- Roof racks for commercial use
- Security systems for delivery vans
- Business branding applied to the vehicle
A personal add-on like heated seats probably won’t make the cut.
Private Use vs Business Use: Why It Matters
HMRC is very strict about separating personal and business use. If you use your vehicle for personal errands or trips, you may only be able to claim part of the VAT — or none at all, depending on the expense.
To stay out of trouble (and avoid any surprises during an inspection), keep mileage logs, business journey records, and full invoices showing VAT clearly.
Top Tips to Stay VAT Compliant
Here are some simple reminders to help you avoid issues and make the most of your VAT claims:
- Always get a VAT invoice from suppliers (fuel stations, garages, lease companies)
- Keep records of mileage, expenses, and how the vehicle is used
- Use accounting software that tracks VAT automatically
- Review HMRC guidelines if your vehicle use changes (e.g., you start offering personal rides)
What About Electric Cars?
With the rise in EVs (Electric Vehicles), a lot of businesses are asking how VAT works on charging costs. The same basic rule applies — if it’s for business, you may claim VAT.
Charging at home? You’ll need to figure out what portion of that electricity is used for business charging. Charging at public stations? HMRC says you can reclaim VAT only if the business is billed and you have a VAT invoice — not always easy to get from these charging apps.
Real-Life Example: Sarah the Freelance Photographer
Sarah is a sole trader who travels across the UK to photograph weddings. She uses her personal car to visit clients and events. Here’s how she handles VAT:
- She tracks mileage in a notebook
- She works out that 60% of her travel is for business
- She claims 60% of the VAT on petrol receipts
- She also reclaims VAT on car servicing, since her car is her working tool
She doesn’t lease her car, and because she uses it for personal trips too, she doesn’t try to reclaim VAT on purchasing it. Smart move!
Remember: One Size Doesn’t Fit All
Each business is different. The type of vehicle, how often it’s used for business, and your VAT registration status all affect what you can claim. That’s why it’s best to:
- Speak to your accountant or tax advisor if you’re unsure
- Keep up-to-date with HMRC guidance
Final Thoughts
Understanding VAT on motoring expenses doesn’t have to be overwhelming. With a solid grasp of what qualifies, keeping good records, and knowing your options, you can make VAT work in your favour. It may seem like just a few pounds here and there — but over a year, those savings really add up.
Still not sure about a particular vehicle expense or want to explore more? You can read the official guidance directly from HMRC by clicking the link below: