We’ve recently been asked about claiming VAT on car leases.
It is important to follow the VAT rules set out by HMRC to ensure that you are not penalised at a later time for over-claiming VAT. Equally, it is important to understand these rules to ensure that you don’t miss out on claiming VAT that you are entitled to claim.
If you are VAT registered then, barring a few exemptions, you can claim input VAT on your business costs and thereby reduce the amount of VAT that you pay over to HMRC each quarter.
One of the exemptions is a business car lease. For this type of expenditure you may only claim half of the input VAT. The VAT claim is restricted to take account of private use which is presumed to occur.
However, this restriction only applies to the lease element. If you make any payments for maintenance then you can reclaim all the input VAT in relation to the maintenance charge.
There are exceptions to the rule being vans and pool cars. A vehicle can only be classed as a pool car if falls within this tight definition:
- Always kept at the business premises overnight
- Never kept at a private home
- Never allocated to a single employee
- Private use is incidental (eg just stopping for lunch)
We would recommend that you create a repeating invoice to record the lease within Xero as you may need three rows of information as detailed below:
- Vehicle lease cost P&L 50% allowed standard rate 20%
- Vehicle lease cost P&L 50% disallowed NO VAT
- Vehicle lease cost P&L Maintenance standard rate 20%
If you need help with this, or with other tax advice, then please get in touch.