VAT and Car Expenses

VAT Jul 24, 2012

While owning a car in a company can be quite expensive for a director, there are instances where it makes sense to do so. The director will then be charged for a benefit in kind which depends on the CO2 consumption, benefit for both the use of the car and the corresponding fuel paid by the company.

The company will then be able to expense all related costs for the car. But it will not be able to recover all the VAT. If the car is purchased outright, then the VAT will not be recoverable if there is any private use. And if the car is leased only 50% of the purchase VAT can be recovered.

You can recover the VAT on repair and maintenance as well as other costs such as parking charges but for road fuel it's a bit more complex. You have 3 options:

  • Reclaim all the VAT and pay the appropriate fuel scale charge - this is a way of accounting for output tax on fuel that your business buys but that's then used for private motoring.
  • Reclaim only the VAT that relates to fuel used for business mileage. You'll need to keep detailed records of your business and private mileage.
  • Not reclaim any VAT. This can be a useful option if your mileage is low and if you use the fuel for both business and private motoring. If you choose this option, you must apply it to all vehicles in the business.

The fuel scale is used as follows:

You need to find out the CO2 rate for the car and round it down. The additional VAT due is then computed per the table of scale charges and should be included in the total output tax figure in box 1 and box 3 of the VAT return. The net amount (i.e. the scale charge for the fuel less the VAT due) should be added to Box 6.

VAT Fuel Scale Charges for a 3 Month PeriodLow CO2 rates - Effective 1st May 2012
CO2 Figure
Scale charge
VAT due (per car)
120 or below
166
27.67
125
250
41.67
130
266
44.33
135
283
47.17
140
300
50.00
145
316
52.67
150
333
55.50
155
350
58.33
160
366
61.00
165
383
63.83
170
400
66.67



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Franck Sidon

With over 15 years of experience as a Managing Director at TaxAssist Accountants, I have helped thousands of businesses and individuals achieve their financial goals and optimize their tax efficiency.