Is VAT charged on van leasing?

Yes. VAT is charged on van leasing, on the monthly rentals and on most other charges in the agreement. If your business is VAT-registered and uses the van for business, you can usually reclaim that VAT, so it is often not a real cost to you.

The short answer

Business contract hire quotes are normally shown excluding VAT, with VAT added on top when you are invoiced. Whether you get that VAT back depends on your VAT status and how the vehicle is used, not on the leasing company.

The detail

What VAT applies to. VAT is added at the standard rate to the regular rentals. It also applies to the initial rental, to any maintenance package included in the agreement, and to extra charges such as excess mileage or damage at the end of the term.

Reclaiming it on vans. A VAT-registered business can generally reclaim the VAT on van rentals through its VAT return, provided the van is used for business purposes. Your accountant can confirm how this works for your situation, especially if there is any private use.

Reclaiming it on cars. Cars are treated differently. If a leased car has any private use, only part of the VAT on the rentals can usually be reclaimed, and HMRC's rules on this are specific. If you are comparing a car with a van, ask your accountant about the difference.

If you are not VAT-registered. Sole traders and small businesses below the registration threshold still pay VAT on the rentals, but they cannot reclaim it. The VAT is part of what they pay.

Special schemes. Businesses on the flat rate scheme or other special schemes may find the rules work differently. Check with an accountant before you sign.

Personal leasing. Consumers on personal contract hire also pay VAT on the rentals and cannot reclaim it.

This page is general information, not tax advice. Contracthire.tv is run by Swiss Vans Ltd, a credit broker and not a lender, and we cannot advise on your tax position.

A worked example with no invented figures

Suppose your quote shows a monthly rental of X excluding VAT.

1. The invoice adds VAT at the standard rate, so each month you are billed X plus X multiplied by the VAT rate.
2. If you are VAT-registered and the van is used for business, you record the VAT part as input tax on your VAT return and reclaim it.
3. Over the period, the net cost to you is X, the ex-VAT rental, although cash flow is affected because you pay the VAT first and recover it at your next return.
4. If you are not VAT-registered, you cannot reclaim the VAT part, so your cost is the full invoiced amount.

When you compare quotes, check that every figure is shown on the same basis, either all excluding VAT or all including it.

Related questions

• Is VAT charged on the deposit or initial rental? Usually yes, because the initial rental is part of the hire charges.
• Can I reclaim VAT on a van I lease through my limited company? If the company is VAT-registered and the van is used for business, generally yes. Confirm with your accountant.
• Does VAT apply to maintenance included in a lease? Yes, it is charged on the maintenance element as part of the rental.
• Is the van's price at the end of the lease subject to VAT? Contract hire does not give you ownership, so there is normally no purchase at the end. Any charges at the end of the agreement, such as damage or excess mileage, usually carry VAT.

Questions people ask

Are van lease quotes shown with or without VAT?

Business quotes are usually shown excluding VAT, and consumer quotes including it. Always check which basis a quote uses before comparing.

Can I reclaim all the VAT on a leased van?

If you are VAT-registered and use the van for business, you can generally reclaim the VAT on the rentals. Private use or special VAT schemes can change this, so ask your accountant.

Do I pay VAT if I am a sole trader and not VAT-registered?

Yes. The VAT is charged on the rentals, but you cannot reclaim it because you are not registered.

Is VAT charged on a leased car in the same way?

VAT is charged in the same way, but the amount you can reclaim on a car is usually restricted where there is private use. The rules for vans are generally more favourable.