Guide to Understanding VAT on Motoring Expenses for UK Businesses and Sole Traders

If you’re a UK business owner or self-employed driver, chances are you’ve asked yourself, “Can I claim VAT on my vehicle expenses?” The rules around VAT and motoring costs can seem like a maze, especially if you’re new to it. But don’t worry — we’ve broken it all down in plain English, so you can understand what you can (and can’t) claim, how to do it properly, and how to avoid costly mistakes.

This easy-to-follow guide is based on official guidance from HMRC and covers everything a business or sole trader needs to know about VAT on motoring expenses.

What is VAT and How Does It Apply to Vehicle Costs?

Let’s start with the basics. VAT (Value Added Tax) is a tax that’s added to most goods and services sold in the UK. If your business is VAT-registered, you can usually claim back the VAT you’ve paid on business-related expenses — including motoring costs.

But it’s not always straightforward. Some motoring costs are fully reclaimable, others only partially, and some are not reclaimable at all. It all depends on what the vehicle is used for.

Business Use vs. Personal Use

This is the key factor HMRC looks at: is the vehicle being used solely for business, or is there personal use too?

• 100% Business Use: If the vehicle is used exclusively for business (like a delivery van that’s never used outside work), you can typically reclaim all the VAT.
• Mixed Use: For vehicles used for both business and personal journeys, you can only reclaim a portion of the VAT — and you’ll need evidence to support how you split the use.
• 100% Personal Use: If the vehicle is for private use only, you can’t reclaim any VAT.

Example: Let’s say you use your car 70% for delivering goods and 30% for going on family trips. You’d be able to reclaim 70% of the VAT on fuel and servicing costs related to that car.

Which Motoring Expenses Can You Claim VAT On?

Here’s a breakdown of common motoring expenses and what VAT you can (and can’t) reclaim:

1. Buying a Vehicle

• If it’s a car and there’s any private use at all — even just once — you usually can’t reclaim any VAT.
• You can reclaim VAT on commercial vehicles like vans, lorries, or trucks — as long as they’re for business use.
• Leasing a vehicle? You can claim back 50% of VAT on the lease if there’s some private use, and up to 100% if it’s strictly for business.

2. Fuel

This often trips people up. Fuel VAT claims depend on how you handle private use.

There are 3 options:

• Claim all the VAT and pay a fuel scale charge: HMRC provides a fixed rate charge to pay for private use fuel. This is a simple method, especially if private use is hard to track.
• Claim VAT only on business fuel: You’ll need to keep detailed mileage records of every journey to do this properly.
• Don’t claim any VAT on fuel: This might be the easiest route if you don’t want the hassle of calculating and justifying claims.

Tip: Many small business owners find the fuel scale charge easiest. You just match your car’s engine size and CO₂ band to HMRC’s rates.

3. Repairs and Maintenance

• Fully VAT reclaimable — even if the car is used for private journeys too. That’s right! Repairs and servicing are treated as maintenance of a business asset.

4. Parking, Tolls, and Congestion Charges

• VAT on parking charges is reclaimable only if the car park is privately owned and the fee includes VAT.
• Standard on-street parking by local councils usually doesn’t include VAT, so there’s nothing to reclaim.
• Tolls and congestion charges often include VAT. You can reclaim it if it was for a business journey. Keep receipts!

5. Accessories and Modifications

• Business-related accessories — like sat-navs, roof racks, or signage — usually have reclaimable VAT if they’re used in connection with your business.
• Modifications for accessibility may also allow for VAT relief, but special rules apply.

What Isn’t Allowable for VAT Reclaims?

Not everything is fair game when it comes to VAT on motoring expenses. Here’s what you can’t reclaim:

• Purchasing cars for personal use — even if it’s also used for business occasionally.
• Motoring fines or penalties — VAT can’t be reclaimed on these.
• Vehicle insurance — insurance is exempt from VAT, so there’s nothing to reclaim.

Importance of Record Keeping

Want to make HMRC happy? Then keep clear, honest, and accurate records.

This means:

• Purchase invoices that show the VAT element
• Fuel receipts
• Mileage logs — including dates, destinations, and purpose of the journey
• Breakdown of private vs business use

Keeping solid records not only helps your VAT reclaims go smoothly but also protects you in case you’re audited.

Top Tips for Managing VAT on Vehicle Costs

Here are some quick tips to stay on top of your VAT claims:

• Use accounting software that tracks VAT and helps calculate scale charges.
• Set up a travel log, even if it’s just a spreadsheet.
• Regularly review business use percentages — especially if your vehicle use changes through the year.
• Talk to your accountant before buying or leasing a company car — they can save you serious money.

Still Confused? Here’s a Real-Life Example

Meet Sarah, a self-employed mobile dog groomer. She leases a small van and occasionally uses it for weekend trips. She:

• Leases the van for £400 a month + £80 VAT
• Uses the van 90% for business
• Fills up fuel twice a week
• Keeps a mileage log

How Sarah handles VAT: She reclaims 50% of the £80 VAT from her lease each month. She keeps detailed mileage records and claims VAT only on fuel used for business purposes. Since most of her driving is for appointments, it’s worth the effort to calculate. She also reclaims VAT on van repairs and toll charges.

With good records and sound knowledge, Sarah keeps more money in her business without stepping out of bounds.

Final Thoughts

By now, you should have a clearer idea of which motoring costs are eligible for VAT reclaims — and how to keep proper records to back up your claims.

Remember the golden rule: if in doubt, keep receipts and ask an accountant. It never hurts to double-check, especially where VAT and vehicle use cross paths.

Key Takeaways:

• You can reclaim VAT on certain vehicle-related expenses for business use.
• How much you can claim depends on whether a vehicle is used partly or fully for business.
• Record keeping is essential to support claims, especially if you split personal and business mileage.

Managing VAT on motoring expenses doesn’t have to be stressful. With the right knowledge — and a bit of organisation — you can keep your claims clean, compliant, and beneficial to your bottom line.

Want to Learn More?

Check out the full guidance at HMRC’s official page:

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