Buying a car through your business might seem like a straightforward way to reduce costs, particularly if you regularly travel for work. However, when it comes to reclaiming VAT on a company car, HMRC has some strict rules.
Many business owners assume that if a car is purchased through their company and used for work, they can automatically reclaim the VAT.
Unfortunately, that isn’t usually the case.
At A&C Chartered Accountants, we regularly help business owners understand which expenses qualify for VAT recovery and how to avoid costly mistakes.
Can you reclaim VAT when buying a company car?
In most circumstances, a business cannot reclaim VAT on the purchase of a car if it is available for private use.
HMRC applies strict rules, and even occasional personal use can prevent a business from recovering the VAT.
For VAT to be reclaimable under the exclusively business-use exception, the car must not be available for private use. This means the business must be able to demonstrate that private use is prohibited and that the restriction is genuinely enforced.
Simply stating that a car is used mainly for business purposes is not enough.
For many owner-managed businesses, this means VAT on the purchase of a company car cannot be reclaimed, even where the majority of journeys are work-related.
When is VAT on a car reclaimable?
There are exceptions where businesses may be able to recover VAT on a car purchase.
Examples include:
- Cars purchased by motor dealers exclusively for resale.
- Vehicles acquired for use as taxis or private-hire vehicles.
- Cars purchased for use in driving schools.
- Vehicles acquired for qualifying self-drive hire.
- Company cars used exclusively for business purposes, with private use genuinely prohibited.
Each situation must satisfy the relevant HMRC conditions.
For example, a company car kept permanently at business premises and unavailable for private journeys may qualify for VAT recovery.
However, the business would need appropriate evidence to demonstrate that the vehicle is not available for personal use.
Can you reclaim VAT on a van?
The rules for vans are generally more favourable.
Unlike cars, VAT on the purchase of a van can often be reclaimed, provided it is used for business purposes and the normal input tax recovery conditions are met.
Where a van is used for both business and private purposes, the amount of VAT recoverable will depend on the circumstances.
It’s also important to check how HMRC classifies the vehicle, as some vehicles that appear to be commercial vehicles may be treated as cars for VAT purposes.
What about VAT on car repairs and running costs?
Even if your business cannot reclaim VAT on the original purchase of a car, you may still be able to recover VAT on certain running costs.
For example, VAT on repairs, servicing and maintenance may be recoverable where the business pays for these costs and the relevant conditions are met.
Different rules apply to fuel, particularly where a vehicle is used for both business and private journeys.
This makes it important to distinguish between purchasing a vehicle and paying for its ongoing running costs.
A recent tax case highlights when VAT can be reclaimed
A recent First-tier Tribunal case, Luxurico Ltd v HMRC [2026] TC10001, has highlighted an important consideration when determining whether VAT on a vehicle purchase can be recovered.
The case involved a luxury vehicle hire business that purchased a hypercar, an exclusive, high-performance sports car.
Luxurico Ltd argued that it had acquired the vehicle with the intention of using it for private-hire purposes, which could qualify for VAT recovery.
However, HMRC challenged the VAT reclaim because there was limited evidence that the vehicle had subsequently been used for its intended purpose.
The dispute centred on whether the company’s original intention at the time of purchase was sufficient to support the VAT reclaim.
Why did the Tribunal rule in favour of Luxurico?
The First-tier Tribunal focused on the company’s intended use of the vehicle at the time the VAT was incurred.
Although the hypercar had not been hired out as frequently as originally anticipated, the Tribunal accepted that the business had intended to use it for a qualifying purpose when it was purchased.
A number of circumstances had affected the vehicle’s subsequent use, but these did not necessarily change the purpose for which it had originally been acquired.
The Tribunal allowed Luxurico’s appeal, meaning the company was entitled to recover the VAT incurred on the vehicle.
The case demonstrates that the intended use of a vehicle at the time of purchase can be an important factor when determining whether VAT is recoverable.
However, businesses must still be able to provide evidence supporting their intentions and satisfy the relevant VAT rules.
What does this mean for business owners?
The rules surrounding VAT on cars can be complicated, and getting them wrong could result in HMRC challenging a VAT reclaim.
Before purchasing a vehicle through your business, it’s worth considering:
- Whether the vehicle will be available for private use.
- Whether it qualifies as a car or commercial vehicle for VAT purposes.
- How the vehicle will be used within the business.
- Whether you have evidence to support the intended business use.
- Whether any specific VAT recovery exceptions apply.
Understanding these rules before making a purchase can help you avoid unexpected tax costs.
Need advice on reclaiming VAT on a company car?
Purchasing a vehicle through your business can have several tax implications, including VAT, Corporation Tax and potential benefit-in-kind charges.
At A&C Chartered Accountants, we help small businesses and company directors understand their tax obligations and make informed financial decisions.
Whether you’re considering purchasing a company car, investing in an electric vehicle or reviewing the VAT treatment of an existing vehicle, our team can help you understand the options available.
Contact A&C Chartered Accountants today to discuss your business vehicle purchase and find out whether you may be eligible to reclaim VAT.