Guide to VAT on Motoring Expenses: What Businesses Need to Know for HMRC Compliance

If your business uses vehicles—whether that’s cars, vans, or even motorbikes—it’s likely you’re spending a fair amount on fuel, maintenance, and other motoring costs. But did you know you might be able to reclaim some of the VAT (Value Added Tax) on those expenses?

That’s where HMRC’s guidance on motoring expenses comes in. In this blog post, we’ll walk you through the essential info you need to stay VAT-compliant and possibly save your business money.

We’ll keep it simple, straightforward, and easy to understand—just like how a professor in an intro class would explain things. Ready to learn? Let’s hit the road!

What Is VAT on Motoring Expenses?

VAT, or Value Added Tax, is a tax added to most goods and services in the UK. If you’re VAT-registered, you can usually reclaim the VAT you’ve paid on your business expenses.

Motoring expenses are any costs related to running vehicles for business purposes. This includes things like:

• Fuel (petrol, diesel, electricity)
• Repairs and maintenance
• Vehicle purchases
• Leasing or hiring charges
• Insurance (though VAT is generally not reclaimable on insurance)
• Parking and tolls

But—and here’s the important bit—not all VAT on these expenses is recoverable. Let’s break it down.

Can I Reclaim VAT on All Vehicle Costs?

Here’s a quick answer: it depends. The ability to reclaim VAT on motoring costs boils down to how the vehicle is used.

Imagine you run a graphic design agency, and you use a car to visit clients. If that car is only used for work—and not for personal stuff like grocery shopping or weekend trips—you can likely reclaim more VAT.

However, most small business vehicles have mixed use—business during the day, personal in the evenings or weekends. In these cases, you can usually only reclaim a portion of the VAT.

Examples of VAT Usage Scenarios

Let’s put things into perspective:

• 100% Business Use: A pool car kept at work and only used during working hours by staff. VAT is fully reclaimable.
• Mixed Use: Your small company vehicle is used for deliveries and the occasional family holiday. VAT can only be partially reclaimed, based on calculated business use.
• Personal Use Only: Your personal car used to commute. VAT can’t be reclaimed.

Understanding the Rules for Fuel VAT

Here’s where it gets a tad trickier. Fuel VAT has its own set of rules under HMRC guidance. You’ve got a few options when handling VAT on fuel costs.

Option 1: Claim All VAT and Pay Output Tax

If you want to reclaim all the VAT on fuel (including for personal trips), you have to pay a fixed sum each quarter—this is known as the Fuel Scale Charge.

Think of it like this: You get the tax back, but you give a little back to HMRC to account for the fuel used personally.

Option 2: Claim VAT on Business Fuel Only

Want to avoid the fuel scale charge? You can. But you’ll need to:

• Record your mileage every time you drive for business
• Calculate how much fuel was used for business travel
• Only claim VAT on that amount

So yes, it takes a bit more admin, but it saves you from having to guess or overpay.

Option 3: Don’t Claim VAT on Fuel

Some businesses simply opt out. If you rarely use a vehicle or running the numbers isn’t worth the hassle, you don’t have to claim VAT at all.

What About Vehicle Purchases?

Can you reclaim VAT when you buy a vehicle for your business? Again, it depends.

For cars:

• You can only reclaim VAT if the car is used exclusively for business.
• You have to keep strict records showing no personal use.

That means no popping down to the shops or school runs—ever. So realistically, most businesses can’t claim VAT back when buying cars.

For commercial vehicles like vans or lorries, VAT is usually reclaimable—as long as the vehicle is used for business.

Leasing vs. Buying: VAT Treatment

Leasing a vehicle works differently than buying.

• If you lease a car, you can usually reclaim 50% of the VAT on the lease if the car is used for both business and personal journeys.
• If it’s for business only, and you can prove that—hello mileage logs!—you can reclaim 100%.

With fuel and services included in your lease, the same principles apply: business use percentage matters.

Repairs and Maintenance: Good News!

There’s a little win here.

You can reclaim the VAT on maintenance and repairs for all vehicles, even if the vehicle is used partly for personal reasons.

So, if your work van needs a new tyre and the garage charges VAT, you can claim the whole amount—no calculations needed. 🚗

How Do Parking, Tolls, and Fines Fit In?

Let’s break these down:

• Parking and tolls: If they include VAT, and you’re VAT-registered, you can reclaim it on business-related trips.
• Fines (like speeding tickets): Sorry, no VAT to claim here. These are considered penalties, not services.

Keeping Records Is Key

One rule of thumb with VAT? HMRC loves paperwork!

To reclaim VAT legitimately, you need to keep valid VAT invoices or receipts. This goes for fuel, repairs, lease charges—you name it.

Also, to back up your claims, keep:

• Vehicle logbooks or journey records
• Invoices clearly separating VAT
• Fuel receipts
• Any leasing agreements

If you’re audited (or even just spot-checked), your records make all the difference.

Common Mistakes to Avoid

Let’s talk about a few pitfalls that catch many businesses out:

• Claiming full VAT on cars that are used personally — Always remember to consider personal use.
• Missing mileage tracking — Not keeping a record means HMRC can assume any use is personal. That’s bad news for your VAT claim.
• Not applying the Fuel Scale Charge when required — If you claim all VAT on fuel but skip paying HMRC their share, you’re non-compliant.

Avoid these, and you’ll already be miles ahead!

When in Doubt, Talk to a Pro

HMRC rules can be tricky. If you’re stuck, reach out to your accountant or a qualified tax advisor. They’ll help you get everything right and may even find ways to save money you hadn’t thought of.

Final Thoughts: The Road to VAT Compliance

VAT on motoring expenses doesn’t have to be overwhelming. Think of it like planning a journey:

– Know your destination (tax savings!)
– Understand your route (HMRC rules)
– Take frequent pit stops (recordkeeping)

By keeping good records, learning the rules, and staying honest about personal vs. business use, you’ll stay on the right side of HMRC—and might get to reclaim some cash along the way.

Got business vehicles? Then understanding VAT on motoring expenses isn’t just helpful—it’s essential.

Stay VAT-Savvy and Keep on Driving!

Want to dive deeper into the official HMRC guidance? Read more here.

Looking for more small business tax insights? Stay tuned to our blog for future guides and updates. Until then, safe driving (and smart claiming)!