Guide to VAT on Motoring Expenses: What Businesses Need to Know and Claim Correctly

When it comes to managing the cost of running a business vehicle, understanding how VAT (Value Added Tax) applies to motoring expenses can save your business a lot of money—and headaches. Whether you’re a sole trader using your car for work, or a company with a fleet of vehicles, knowing what you can and can’t reclaim from HMRC is important.

This easy-to-follow guide breaks down the rules around claiming VAT on motoring expenses so that you can make the most of your tax returns while staying compliant.

What Are Motoring Expenses?

Let’s start with the basics. Motoring expenses are any costs related to the use of a vehicle for business purposes. These can include:

• Fuel – petrol, diesel, or electricity for electric vehicles
• Vehicle maintenance and repairs
• Parking fees and toll charges
• Vehicle insurance
• Car leasing or hire charges

Sounds simple enough, right? But the rules set by HMRC vary based on the type of vehicle, how it’s used, and even who owns it. That’s why getting it right matters.

Can You Reclaim VAT on Motoring Expenses?

Here’s the good news: if your business is VAT-registered and the vehicle is used for business purposes, you can usually reclaim VAT on related expenses. But—and there’s always a “but”—there are some restrictions and exceptions.

Full VAT vs. Partial VAT Reclaim

One of the most common questions people ask is: “Can I reclaim the full amount of VAT on everything I spend on my car?” The answer depends on how the vehicle is used. Let’s look at two common scenarios:

1. Vehicle Used Strictly for Business

If the vehicle is used 100% for business purposes only and not for any private use, you can reclaim the full VAT on:

• Purchasing the vehicle
• Fuel
• Repairs and maintenance
• Lease payments

But be careful—HMRC requires proof that there’s no private use at all. That means no quick grocery runs after work or even commuting from home to the office, unless that’s a temporary workplace.

2. Vehicle Used for Both Business and Personal Use

This is more common. If you (or your employees) use the business vehicle for personal reasons, such as commuting or family errands, the rules change. You’ll only be able to reclaim part of the VAT, based on how much the vehicle is used for business.

For example: If 60% of the total miles driven are for business and 40% are for personal use, you can only reclaim 60% of the VAT.

VAT on Fuel: What You Should Know

Fuel is a separate beast when it comes to reclaiming VAT. Thankfully, HMRC gives businesses three options:

Option 1: Reclaim All VAT Using a Fuel Scale Charge

If your business pays for all the fuel (business and private), you can reclaim 100% of the VAT and pay a fixed-rate charge called a fuel scale charge. This charge is based on your vehicle’s CO₂ emissions and is meant to cover the personal use part.

Option 2: Reclaim VAT Only on Business Fuel

If you want to avoid the fuel scale charge, you can reclaim VAT only on the fuel that’s used for business. You’ll need to keep accurate records of your mileage and calculate how much fuel was used for business travel.

Option 3: Don’t Reclaim Any VAT on Fuel

Some businesses decide it’s not worth the hassle and choose not to reclaim any fuel VAT. This may be the simplest option if business use is minimal.

Quick Tip:

Whichever method you pick, stick with it consistently. You can’t switch methods every quarter to suit what’s most beneficial.

Leased and Hired Vehicles

If you’re leasing or hiring a vehicle for business, the ability to reclaim VAT depends on the type of lease:

• Short-term hire (less than 10 days): You can reclaim VAT in full if the vehicle is used exclusively for business.
• Long-term leasing: Generally, you can reclaim 50% of the VAT even if there’s private use, and 100% of VAT on maintenance.

When You Can’t Reclaim VAT

Now, let’s look at situations where VAT can’t be reclaimed. Knowing these can save you from making costly mistakes:

• Buying a car for business that’s also used privately – You can’t reclaim any VAT on the purchase.
• Company cars with significant private use – The cost of private use must be excluded.
• Non-business journeys – No VAT can be reclaimed on personal or commuting mileage.
• Insurance premiums – VAT on insurance is already exempt, so there’s nothing to reclaim.

What Records Should You Keep?

HMRC loves good record-keeping. To reclaim VAT successfully—and defend yourself in case of an audit—you should keep:

• VAT invoices for fuel, maintenance, and leasing payments
• Mileage logs or fuel receipts showing business vs private use
• Leasing agreements detailing VAT charges and terms
• Proof of business use, such as appointments logged or delivery schedules

These records should be kept in good order for at least six years—or longer in some cases.

Electric Vehicles (EVs) and VAT

As the world shifts toward greener transport, many businesses are moving to electric vehicles. But how does VAT work with EVs?

The rules are largely the same:

• You can reclaim VAT on buying or leasing the vehicle, if used solely for business purposes.
• If there’s any private use, full VAT reclaim is not allowed—same as with petrol or diesel cars.
• You can reclaim VAT on charging at public stations with a VAT invoice. However, charging an EV at home is trickier.

If an employee charges a company EV at their home, VAT can’t be reclaimed unless their supplier provides a VAT invoice—and many don’t.

What About Employee-Owned Cars Used for Business?

Sometimes employees use their own cars for work travel and claim mileage. In this case:

• Employees are paid a mileage rate (e.g., 45p per mile up to 10,000 miles)
• The rate includes fuel and general wear and tear
• You can reclaim the VAT on the fuel portion only, not the full mileage rate

HMRC publishes advisory fuel rates that break down the VAT portion—just make sure to keep mileage logs and receipts!

Common VAT Mistakes to Avoid

Let’s wrap things up by going over a few common slips that could lead to trouble with HMRC:

• Claiming full VAT on cars with private use
• Not adjusting claims for personal mileage
• Poor record-keeping – no receipts or logs, no claim!
• Switching between fuel VAT methods too often
• Forgetting scale charges when reclaiming fuel VAT

Final Thoughts

VAT rules on motoring expenses can feel like a maze, but understanding a few key principles can go a long way. Ask yourself this: How is the vehicle used? and Do I have proper records? Once you answer those, you’re already ahead of the game.

Remember, every penny counts for small and medium-sized businesses. Take the time to get it right, or better yet—work with an accountant who can help.

To dive deeper into the official rules, read the full HMRC guide here:
https://www.gov.uk/guidance/vat-on-motoring-expenses-notice-70064