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Leasing a car – Motoring expenses & how much VAT can you claim back!

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When it comes to the regaining VAT tax from purchasing a new car, it’s very challenging with some exceptions. As a comparison, the VAT tax position for leasing and similar agreements is less strictly, but how much can you regain legally?

Principles and exceptions

HMRC scrupulously respects the principles of non-refundable VAT tax in the car’s purchase, which is intended not only for business.

Exceptions are used cars, like taxis or vehicles, meant for driving lessons. However, we may have to calculate VAT for every private usage of the mentioned cars.

The blockage for regaining a VAT tax does not include vehicles’ leasing since June 2019 and other purchases based on similar rules with the usage of the personal contract purchases principle.

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The 50/50 rule

If you rent or buy a car with a PCP qualification and a view to using the car by you, or your employee, it will be possible to regain 50% of a counted VAT tax.

Hint one: The frequency of using a car for personal reasons doesn’t change the regained VAT tax percentage. What matters is the fact that the vehicle has been used not only for business.

Leasing or a purchase?

A decision might be challenging, primarily because of the changes since 2019. It is especially difficult to say if the concluded agreement has an appropriate form, which will entitle to regain VAT tax.

Even so, it’s possible to check it by received invoices and requests for payment from the finance company. Generally, each cost includes a VAT amount, which you can recover by 50%. If it’s not possible, then another look into the documents will be necessary. Nevertheless, if you’re still not confident about the VAT status, you should call and ask the leasing company’s finance department.

Don’t get caught by the annual summary!

The finance company usually issues the VAT invoice once – during the leasing agreement, and then they present every installment owed for the specified period. In the meantime, they may send requests for payment or payment receipt where the VAT tax is not indicated.

For that reason, you can wrongly suspect that the VAT tax has not been calculated, and consequently, you won’t exercise the right to return it.

Hint Two: You might’ve been entitled to apply for more than 50% of counted VAT tax for additional costs included in leasing or PCP payment.

Allowances for VAT tax

The 50/50 rule doesn’t include the maintenance costs from leasing or PCP, which cover service and the cost of using when presented separately on the invoice.

Hint Three: A HMRC credit means that you’re allowed to regain 100% of the VAT tax you’ve paid by other calculated costs for the maintenance, service, etc. It does even concern the cases of your, your family members, or employees car usage.

Hint Four: You can also regain 100% of your VAT tax when your company is self-obligated, and it independently pays the costs of service, etc. As previously, private car’s usage doesn’t affect it.

All in all

You can regain 50% of VAT tax calculated into the lease installments irrespective of the frequency of the car’s usage for personal reasons.

If the leasing company charges fees for maintenance separately, you can receive a 100% return. Also, in both cases, the private car’s usage doesn’t influence the sum you can regain.