Can a company reclaim VAT on the purchase of a car?

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Many of our clients assume that if their company purchases a new car for use by an employee, the company will be able to reclaim the VAT charged by the dealer.

Unfortunately, this is not the case! HMRC are very strict when it comes to VAT on cars: if there is any private use of the car, or if it is made available for private use, VAT is not recoverable on the purchase.

HMRC defines ‘made available for private use’ as when there is nothing preventing you or your employee from using the car for private use. The fact that the company bought the car for the purpose of the business is not the only requirement – you would need to ensure that the car is not made available to yourself or anyone else for anything other than business purposes.

HMRC list certain exceptions, which include the following:

-          vehicles capable of accommodating only one person or suitable for carrying 12 or more people (e.g. minibus)

-          vehicles of not less than 3 tonnes unladen weight

-          vehicles with a payload of 1 tonne or more (this includes some double cab pickups)

Pool cars would also be excepted if they are kept at the principal place of business, not allocated to a specific individual and not kept at an employee’s home.

The definition of a car for VAT purposes is any motor vehicle of a kind normally used on public roads which has three or more wheels and either:

-          is constructed or adapted mainly for carrying passengers;

-          has roofed accommodation to the rear of driver’s seat that’s fitted with side windows or that’s constructed or adapted for the fitting of side windows

Note that this includes electric vehicles! The VAT treatment for EVs is the same as for petrol or diesel vehicles (although the corporation tax treatment can be more favourable).

For any further advice please call the team at Ellis & Co. on 01244 343 504.