26 Sep VAT – Motor Expenses
The treatment of car motor expenses for VAT purposes can be quite complex.
You are normally only permitted to reclaim 50% of the input tax for the cost of car leasing regardless of the price of the car. However this restriction does not apply if the vehicle is used as a taxi, for self-drive hire, or for driving instruction.
With the exception of car fuel, you can claim back the VAT on all your motor expenses in full, if you have valid VAT invoices for those costs. For car fuel used for private motoring, there are special rules. If you reclaim VAT on fuel that is used for private purposes, you must pay a VAT scale charge based on the CO2 emission band of the car. This is a fixed charge that is not related to the amount of actual use. £1 of private petrol and you’re caught.
Scale charges are the most common omission from VAT returns and are one of the first things looked for on a VAT inspection and easy to identify when they are missing.
You should do a calculation to identify if it is worth your while reclaiming the VAT on private fuel. If the amount of VAT you can reclaim on the fuel you buy is less than the amount of VAT to pay on the scale charge then you opt out of reclaiming the VAT on the fuel in order to avoid the scale charge.
If the company car driver repays you in full for any private fuel used, then no scale charges are due. However, you should charge output VAT on the amount the driver pays to you.
You can have some cars opt for scale charges and some not, but this would certainly complicate your VAT records.
You are able to reclaim the VAT on business car parking including that at the business premises.
When you pay a fixed mileage rate to your employees for business travel such as the 45p per mile, this rate is intended to cover various elements such as fuel, repairs, insurance, depreciation, etc.
However you are allowed to reclaim the VAT on the fuel element, which many businesses forget to do.
To help you identify the fuel element the VATman has published advisory fuel only mileage rates for company cars – see advisory fuel rates. They are advisory rates, not compulsory but are a good starting point. To reclaim the VAT, simply multiply the fuel only rate by 20 and divide by 120 (from 4 Jan 2011). Before 4 Jan 2011 multiply by 17.5 and divide by 117.5.
If you have not reclaimed this VAT in the past, you can go back 3 years and reclaim the VAT now.
How We Can Help You
Please contact us for advice on any aspects of VAT reclaims in relation to motor expenses.