Making VAT savings when buying an electric car

The electric car revolution is with us and if not quite a tsunami of sales, more and more people and businesses are looking at them.

According to figures from the Society of Motor Manufacturers and Traders (SMMT), electric vehicles, whether full electric or different forms of hybrid, account for more than 25 per cent of the market in the year to this September, nearly doubling sales from the previous year. Of these 9.5 per cent, or 125,000, were fully electric.

With the sale of petrol and diesel no longer permitted after 2030 and hybrids by 2035, the matter becomes more pressing. For business users there are many things to consider.

Can I reclaim VAT on a company vehicle?

Electric vehicles, like petrol, diesel and hybrids, are classed as cars and attract the same tax benefits. You may be able reclaim the full amount of VAT on a new car, but only if it is exclusively for business use.

If it’s a business vehicle, like a taxi, hire car or driving instructor vehicle, you may also be able to claim VAT back, but not if the car is used for any private use, including travel to and from work.

No VAT can be recovered on the purchase of a company car. However, for leased vehicles which are available for private use, 50 per cent of the VAT on the leasing costs can be recovered.

Are pool cars subject to VAT?

Many firms are able to claim by using pool cars as company vehicles available for use by one or more employees of that company. It must be:

  • Kept at the principal place of business
  • Not allocated to a specific individual
  • Not normally kept at an employee’s home
  • Made available to and used by more than one employee
  • Not ordinarily used by one employee to the exclusion of others
  • Used only for business journeys.

If the vehicle can be classified as a pool car, a company can recover the VAT incurred.

Can I reclaim VAT on a hire vehicle used by my business?

If you hire a car to replace a company car that’s off the road, you can usually claim 50 per cent of the VAT on the hire charge.

If you hire a car for another reason (for example you do not have a company car), you can reclaim all the VAT if all the following apply:

  • You hire it for no more than 10 days
  • It’s used only for business
  • It’s not available for private use.

Can I reclaim fuel costs?

You can reclaim all the VAT on fuel if your vehicle is used only for business. You can:

  • Reclaim all the VAT and pay the right fuel scale charge for your vehicle
  • Only reclaim the VAT on fuel you use for business trips – you’ll have to keep detailed mileage records
  • Choose not to reclaim any VAT, e.g. if your business mileage is so low that the fuel scale charge would be higher than the VAT you can reclaim.

Additional costs you can claim for include all business-related running and maintenance costs, such as repairs or off-street parking and any accessories you’ve fitted for business use. You can do this even if you cannot reclaim VAT on the vehicle itself.

Can I reclaim VAT on second hand vehicles?

The sales invoice for your used vehicle must show the VAT.  You cannot reclaim if it does not show the invoice, for example if the seller uses the VAT margin scheme.

Here to help

If you are looking to hire, lease or purchase a vehicle for use in your business speak to our team to find out how we can help you with VAT and other tax savings

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