Leasing a car

By Tolley

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: