VAT on motoring costs depends on the vehicle, the expense and the business and private use. A cost being paid by the business does not automatically make all its VAT recoverable.
Vehicle and leasing costs
Buying or leasing a car can involve restrictions on recovery. Particular activities and uses may have different treatment.
Keep the agreement and invoices, and establish how the vehicle is actually used. Use the official motoring-expenses guidance for the applicable restrictions.
Fuel and private use
Private fuel needs separate attention. Available approaches can involve business-only recovery, accounting for private use or applying a fuel scale charge.
Compare the recovery with the amount that must be accounted for, and check whether the chosen approach must be applied across the business’s vehicles. Do not select a method for each car without reviewing the rules.
The official fuel scale-charge tool provides current figures.
Mileage payments
An employee’s mileage reimbursement covers more than fuel. Any VAT recovery relates to the eligible fuel element and requires appropriate evidence, rather than the whole payment.
Retain journey records and VAT receipts, and check the treatment of repayments for private fuel.
Review other costs
Repairs, maintenance and business parking may have different treatment from the vehicle purchase or fuel. Examine each category rather than applying a single recovery percentage to all motoring expenditure.