Commentary

V7.449 Other motoring expenses

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.449 Other motoring expenses

Part V7 Tax planning | Commentary

V7.449 Other motoring expenses

It should be noted that the guidance that follows assumes that the business in question does not trade in motor vehicles, for example as a car hire company, taxi business, car dealer etc.

Leasing or hiring a motor car

Lease

As a general rule, input tax cannot be recovered on the purchase of a car. If a car is leased rather than purchased by a business the leasing company will charge VAT on the monthly rental payments.

In such cases, input tax is (assuming there are no partial exemption issues) reclaimable on 50% of the lease charge. See Example 6.

The exception to the 50% rule is if the vehicle is used for a taxi business or driving school, in which case 100% input tax can be claimed.

Example 6

ABC Ltd has leased a BMW car for a three-year period for use by its sales manager. The monthly charge is £300 plus VAT of £60 (based on 20% rate of VAT).

Solution – input tax of £30 can be reclaimed on each payment made to the leasing

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