Leasing a car

By Tolley
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The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Leasing a car
  • Leasing companies
  • Leasing cars used for solely business purposes
  • Leasing a car that is available for private use
  • Replacement cars
  • Self-drive hire cars
  • Tripartite and parallel agreements
  • Maintenance charges
  • Terminating a lease
  • Rental rebates
  • Fleet bonus
  • Repairs and maintenance
  • Private use
  • Businesses using the vehicle for non-business / exempt activities

This guidance note provides an overview of what VAT can be recovered on the lease of a car. Please see the Buying and selling a car guidance note for information on buying and selling a car.

SI 1992/3222, Article 7(2H); HMRC Notice 700/64 ; De Voil Indirect Tax Service V3.443 (subscription sensitive); 2006/112/EC, Article 176 ; VIT53300
Leasing companies

A leasing company can recover all of the VAT incurred on the purchase of a car providing that they will lease the cars at a commercial rate to the lessor. The leasing company is required to state the following on the leasing invoice:

SI 1995/2518, reg 14(6)
  • whether or not the car is “a qualifying car under Article 7(2) of the VAT (Input Tax) Order 1992 (as amended)”
  • the VAT due on both the leasing charge and service (maintenance) charge
  • the VAT due on the leasing charge is the amount that is potentially subject to the 50% input tax restriction
Leasing cars used for solely business purposes

If a business uses the car for solely business purposes, such as a taxi, driving school, etc they can recover all of the VAT incurred on the lease of the car.

Leasing a car that is available for private use

A business that leases a qualifying car that is available for private use is only entitled to recover 50% of the VAT incurred on the leasing cost. The other 50% of the VAT incurred is blocked from VAT recovery. The 50% block applies to all charges levied in respect of the lease of the car, including the following:

More on Claiming input tax: