How do I reclaim VAT on a commercial vehicle?

By: Paul Goodwin     Approved by the Car Finance Advisory Board

In this section we've compiled some of the most popular questions from our customers regarding claiming back VAT on a commercial vehicle.

Can I reclaim VAT on a new commercial vehicle?

Yes, you can reclaim VAT on a commercial vehicle that you've purchased as long as the vehicle is used:

  • Exclusively for business purposes (if the vehicle is used in any way, shape or form for private use outside of the business, you'll not be eligible for claiming back the VAT)
  • A taxi, for driving instruction or self-drive hire

If you meet the above criteria, you'll be eligible to apply for a VAT refund.

Further information on this can be found online at HMRC.

Can I claim back VAT on a commercial vehicle that I've leased or hired?

Reclaiming the VAT on a vehicle that you've leased or hired for business use is dealt with slightly differently to claiming back VAT on a vehicle that you've purchased. In most circumstances you'll only be allowed to reclaim 50% of the VAT paid on the monthly rental this is known as Effective Rental.

For example:

If you had a rental of £100 plus VAT (i.e. £117.50) you could only reclaim half of the VAT, leaving the Effective Rental at £108.75.

However, you'll be eligible to apply for a 100% VAT return if you can provide evidence that the leased vehicle is any of the below:

  • A taxi that’s hired out with a driver
  • A driving school vehicle
  • A self-drive hire car
  • A car on which input tax has been blocked at an earlier stage
  • Exclusively for business use

Further information around this can be found online at HMRC.

Can I claim back VAT on a used commercial vehicle?

This depends on whether the used vehicle has been bought under the Margin scheme for second-hand vehicles.

If the vehicle has been sold under this scheme the invoice will not show any VAT, therefore you won't be eligible to reclaim any VAT even if the vehicle was going to be used solely for the purpose of business.

If on the other hand the vehicle hasn't been sold under the Margin scheme and you can meet all of the same requirements for reclaiming VAT back on a new commercial vehicle, then yes, you'll be eligible to apply for a VAT refund.

If you have a question which isn't answered within our Commercial Finance Help pages, please use our LiveChat function located to the right of this webpage.

Published: 16/05/2016
Last Updated:05/03/2017
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