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

Running a business in the UK means keeping an eye on many moving parts—taxes being one of the most important! If you or your employees use a vehicle for business purposes, understanding VAT on motoring expenses is something you can’t afford to miss.

In this blog post, we break down the complex guidance from HMRC into easy, bite-sized pieces. Whether you’re a startup founder, self-employed, or part of a larger organization, you’ll walk away understanding how VAT applies to business-related car and vehicle expenses.

What Is VAT on Motoring Expenses?

Let’s start off with the basics. VAT (Value Added Tax) is a tax added to most goods and services in the UK, including many motoring costs. Depending on how a vehicle is used, some or all of the VAT incurred can be reclaimed. However, there are specific rules you need to follow to stay compliant.

You might be wondering: Can I really claim back VAT every time I fill up my car’s petrol tank or pay for maintenance? The answer is—it depends. Let’s look closer.

Can You Claim Back VAT on Vehicle Expenses?

Yes, but only under certain conditions. Here’s a quick summary of when VAT is reclaimable:

• The vehicle must be used for business purposes.
• The business must be VAT-registered.
• Valid VAT invoices must be kept as proof of the expense.
• No private use in certain cases (especially when it comes to car purchases).

Let’s now break this down by category for a clearer understanding.

1. Buying a Vehicle

Commercial Vehicles

If you buy a van, lorry, or another commercial vehicle strictly for business use, you can usually reclaim all the VAT you’re charged at the time of purchase.

Example: Say you buy a delivery van for your courier company. As long as it’s used strictly for deliveries and not weekend getaways, you can reclaim 100% of the VAT.

Cars

This is where things get trickier.

In general, you cannot reclaim VAT on the purchase of a car—unless you can prove it’s used 100% for business purposes. That’s a high bar.

For example, if the car is stored at your office, has a tracker monitoring usage, and is not available for any personal use, then you may be eligible to reclaim the VAT. But most everyday business owners won’t meet this strict requirement.

2. Fuel Costs

Petrol and diesel are big expenses for most businesses, especially those with staff on the road. Luckily, there are three ways to deal with VAT on fuel:

I. Claim All the VAT

This works if you can separate business use from private use accurately.

But there’s a catch—the business must also pay VAT on private use through what’s called the fuel scale charge.

II. Claim VAT Only on Business Miles

This is a simpler alternative. Just record the business mileage and only reclaim the VAT for that portion of fuel expense.

III. Don’t Claim VAT on Fuel at All

If it’s too messy to separate personal from business use, you can choose not to claim any VAT and keep life simpler.

Tip: Always keep accurate mileage logs and receipts to support your claim.

3. Vehicle Leasing

If you lease a car or van, the rules are again different.

For leased cars, you can usually reclaim 50% of the VAT if there’s any private use—even if it’s just occasional.

However, 100% of the VAT is reclaimable in cases where the vehicle is strictly for business use, such as in a taxi service or car rental business.

4. Vehicle Maintenance and Repairs

Here’s some good news—you can usually reclaim all the VAT on maintenance and repairs for business vehicles, even if they’re sometimes used privately.

This includes:

• New tyres
• Servicing
• Brake replacement
• Oil changes

Just make sure you have a proper VAT invoice in your business name as proof.

5. Using Personal Vehicles for Business

This scenario is common, especially for sole traders or employees using their own cars for work travel.

If you pay your employee a mileage allowance (e.g., 45p per mile), VAT can be claimed on the fuel portion of that allowance—not the whole amount.

To do this, HMRC provides advisory fuel rates that tell you how much of each mile relates to fuel. That’s the part you can apply VAT to.

Here’s an Example:

Let’s say you pay your employee 45p per mile. HMRC’s advisory rate for fuel might be 12p per mile. In this case, you can only claim VAT on that 12p, not the full 45p.

An accurate mileage claim relies heavily on detailed logs and fuel receipts. No guesswork allowed.

6. Parking and Tolls

VAT can be reclaimed on business-related parking charges, but not on parking fines or penalties.

For example, if you pay to park outside a client’s office during a meeting, that’s a reclaimable expense—as long as the parking provider is VAT-registered and gives you a proper receipt.

Same goes for tolls like the Dartford Crossing, or London Congestion Charge—but again, not the fines!

7. Road Tax and Insurance

VAT cannot be recovered on road tax—it’s outside the scope of VAT.

In terms of insurance premiums, most types of vehicle insurance are exempt from VAT, so there’s nothing to reclaim.

Recording and Reporting VAT

To successfully reclaim VAT on motoring expenses, you must:

• Keep full records—invoices, receipts, mileage logs.
• Use digital accounting software if you’re signed up for Making Tax Digital.
• Report VAT accurately in your VAT returns. Don’t estimate or round values carelessly.

Having poor records is one of the quickest ways to get into trouble with HMRC. So make sure everything is neat and transparent.

Quick Tips to Stay on the Right Track

Here’s a quick checklist to help manage VAT on motoring expenses better:

• Separate business and personal use from the beginning.
• Keep invoices in the business name.
• Don’t try to claim VAT on costs that are mixed or clearly private.
• Use tracking apps for mileage—many are HMRC-compliant.
• Review your VAT claims regularly to avoid overclaiming.

Final Thoughts

Navigating VAT on motoring expenses doesn’t have to be stressful. With the right habits—keeping records, knowing what to claim, and getting help when you need it—you’ll stay compliant and maybe even save your business a nice chunk of change.

Still not sure whether your situation qualifies? Talking to a VAT specialist or accountant could give you clear answers tailored to your business.

Remember, HMRC doesn’t take shortcuts well. If in doubt, don’t guess—document everything.

Want to dive deeper into the official guidance?

Read more at the official HMRC website.