Can I reclaim VAT on a leased car?

If your business is VAT-registered, you can usually reclaim half of the VAT on the rentals of a leased car, because HMRC restricts the claim where private use is possible. On a leased van used for business, VAT is normally reclaimable in full. This is general information, not tax advice.

The short answer

Leasing a car through business contract hire: a VAT-registered business can normally reclaim half of the VAT charged on the rentals. Leasing a commercial van used for business: the VAT is normally reclaimable in full. Businesses not registered for VAT cannot reclaim it.

The detail

You must be VAT-registered. Only a VAT-registered business can recover input VAT. A sole trader, partnership or limited company outside the VAT system has nothing to reclaim. Some schemes, such as the flat rate scheme, also limit what you can recover, so check how you are registered.

Cars: the half restriction. When a business leases a car that could be used privately, HMRC allows only half of the VAT on the rentals to be reclaimed. Private use includes ordinary commuting, so it is wider than many people expect. The restriction applies to the lease payments, including any larger initial rental. The VAT you cannot reclaim is generally treated as part of the cost of the car.

Cars with no private use. In rare cases, such as a vehicle that is genuinely unavailable for any private use, the full VAT may be reclaimable. HMRC expects this to be demonstrable, so do not assume it applies to a company car that a director or employee also drives home.

Vans: usually reclaimable in full. Where a van is a genuine commercial vehicle and is used for business, VAT on the rentals is normally reclaimable in full. Whether a vehicle counts as a van or a car for VAT depends on its construction and design, not just how it is advertised. Some double-cab pick-ups and car-derived vans need particular care.

Maintenance and other elements. If your agreement includes servicing or other extras, the VAT treatment can depend on how the contract and invoices are set out. Ask your accountant how to treat this for your own arrangement.

Invoices matter. Keep the VAT invoices from the leasing company. Reclaim is made through your normal VAT return, and your accountant should confirm the correct treatment before you rely on it.

A worked example with no invented figures

Suppose your VAT-registered business has a monthly rental invoice with a VAT line. Call the amount shown on that line V.

• Leased car with possible private use: you would normally reclaim half of V on your VAT return. The other half stays as a cost to the business.
• Leased commercial van used for business: you would normally reclaim all of V.
• Business not VAT-registered: you reclaim none of V, whatever the vehicle.

Read V from the invoice for your own agreement. Your accountant can confirm how the split applies to your circumstances, including any initial rental.

Related questions

• Is VAT charged on business contract hire? Yes, VAT is normally added to the rentals, so the VAT treatment above applies to what you pay.
• Does it matter whether I lease or buy? Yes, the VAT rules differ. Your accountant can compare the position for your business.
• Can a limited company, sole trader or partnership reclaim? Any of them can, provided they are VAT-registered and the usage fits the rules above.
• What about personal contract hire? Individuals cannot reclaim VAT on a personal lease.

Questions people ask

Can I reclaim all the VAT on a leased company car?

Usually not. For most leased cars with any private use, only half of the VAT on the rentals can normally be reclaimed. Full reclaim is limited to cases with genuinely no private use.

Is VAT on a leased van reclaimable?

Normally yes, in full, if you are VAT-registered and the van is a commercial vehicle used for business. Check that the vehicle qualifies as a van for VAT purposes.

Do I need to be VAT-registered to reclaim?

Yes. If your business is not registered for VAT, you cannot reclaim input VAT on lease rentals.

Does contract hire change the VAT position compared with buying?

Yes, the rules for leasing and purchase are different. Contracthire.tv is a credit broker, not a lender, and cannot give tax advice, so ask your accountant which route suits your business.