Can You Claim Back VAT on Lease Cars?

The UK tax system is typically complex and difficult to understand, and this is true also when short term leasing a car. We are often asked whether you can claim back VAT on lease cars. The answer isn’t as straightforward as you might hope…

Yes, you can claim back VAT on lease cars, but you can only claim back 50% of the VAT paid on leasing a car. This 50% block covers the private use of the car, unless you can provide evidence that the car is solely for business use, such as a pool car.

It's important to note that if the car is used for business purposes, you can reclaim VAT on any repairs and maintenance paid for by the business.

Claiming VAT back on a company car lease

For business purposes, leasing normally disqualifies you from recovering 50% of the VAT charged due to the 50% block assigned for private use. However, subject to the regular rules, you can reclaim the remaining 50% of the VAT charged on a company car lease.

The 50% block applies to all VAT on charges that you pay for the car lease under the terms of the leasing agreement, including optional services, except when they're supplied and shown separately from the leasing supply on the tax invoice.

You can also reclaim full VAT on the finance element of the lease agreement for leased company cars used by multiple employees and left on business premises overnight and at weekends if they're categorized as pool cars, taxi cabs, driving school cars, or self-drive hire vehicles.

However, you need to provide proof that your car falls into that category.

If you use a vehicle for business purposes, you can reclaim the VAT you were charged on repairs and maintenance as input tax if the business paid for the work, regardless of whether the vehicle is used for private motoring or if you chose not to reclaim VAT on road fuel.

It's essential to note that the 50% input tax block applies only to the lease element of the contract. The maintenance element is considered a business expense, allowing you to claim 100% of the VAT back, provided that the maintenance charge is listed separately on the rental invoice.

Sole proprietors or partners who use a vehicle solely for private motoring cannot reclaim VAT on repairs to their leased car as input tax.

Can you claim back VAT on an electric lease car?

With the increase in electric cars being leased, and the encouragement for drivers to make the switch to electric, you might assume that electric cars have different tax regulations.

However, this is not the case, as electric cars are still subject to the standard VAT rate of 20%, just like regular cars. Therefore, there is no VAT advantage to leasing an electric car for 6 month lease terms.

Nonetheless, you can still reclaim some VAT on an electric car lease, as long as the claim meets the criteria for VAT on leased cars that we have previously outlined.

Specifically, you can claim back 50% of the VAT paid on an electric car lease. In summary, if a company car is purchased and used privately, no VAT can be reclaimed. However, if the car is leased, 50% of the VAT on the leasing fee can usually be claimed back, whether the car is electric, hybrid, petrol, or diesel.

To conclude, a business can reclaim 50% of the VAT charged for leasing an electric car.