May 23, 2019


The ability to reclaim VAT on the purchase or lease of a vehicle depends firstly on whether the vehicle is considered to be a car, as there are specific rules relating to reclaiming VAT on cars.


For VAT purposes a car is a motor vehicle normally used on public roads, with three or more wheels and either:

• Is constructed or adapted mainly for carrying passengers, or

• Has roofed accommodation to the rear of the driver’s seat and is fitted with side windows.

The following are not cars for VAT purposes:

• Vehicles capable of carrying only 1 person or suitable for carrying more than 12 people

• Caravans, ambulances and prison vans

• Vehicles with an unladen weight of 3 tonnes or more

• Specialised vehicles, such as ice cream vans, hearses or breakdown/recovery vehicles

• Vehicles with a payload of 1 tonne or more.


As a general rule, you cannot recover VAT on the purchase of a car.

However VAT can be recovered in full on:

• Cars bought as stock in the motor trade

• Cars bought for use primarily as a taxi, for providing driving instruction or self-drive hire

• Cars used exclusively for business purposes

• Pool cars, normally kept at the business address, not allocated to an individual and not kept at an employee’s home.

The issue of whether a car is used exclusively for business purposes is not as simple as it sounds. To be used exclusively for business, a car cannot be made available for private use. A car is available for private use if there is nothing preventing it being used privately. This is a stringent test and simply not having an intention to use the car privately is not sufficient, there must be something that precludes private use.

If a car is available for private use and you have a PCP agreement that represents a supply of goods, no VAT can be reclaimed.


VAT on lease and hire charges can be reclaimed in full where the car is not available for private use.

Where the car is available for private use a 50% block on input VAT recovery applies, consequently only 50% of the input VAT can be reclaimed. If you have a PCP which is a deemed to be a hire contract, you may be able to recover half of the VAT incurred.

This block applies to the rental charges but not any optional charges for servicing.

Where a car is hired on a short term basis to replace an off the road company car, the same 50% block on input VAT recovery applies from day one. If a car is hired for business purposes for 10 days or less, not to replace a company car, the 50% block will not apply.

If you would like to discuss your own position or require further information, please get in touch.


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