VAT ON MOTORING EXPENSES

 

1. Principles Of Input Tax Recovery:

• The expense must be incurred in the course or furtherance of business.
• Input tax is only claimable to the extent that the business makes taxable supplies. Fully or partially exempt businesses cannot recover all of the input tax they incur. VAT on a motoring cost being input tax means that it is recoverable subject to the business’s overall partial exemption position.
• Input tax can only be claimed on a supply made to the business.

All input tax claims must be evidenced. This requires the business to hold a VAT invoice for the expense and to be able to justify the extent to which it was used for a business purpose.

2. Repairs And Maintenance

2.1 Overview

VAT on repair and maintenance costs may be treated as input tax if:

• The motor car is used by the business; and
• The work carried out is paid for by the business.

The appropriate partial exemption calculations should be done, but for a fully taxable business input tax incurred on repairs and maintenance can be claimed in full even if:

• The car is partly used for private motoring; and/or
• no VAT is reclaimed on-road fuel in order to avoid the scale charge (see below).

This includes VAT on repair and maintenance costs incurred by an employer on an employee’s private car, provided the costs of the repair are actually paid by the employer and included in their accounts. ‘Paid by the employer’ includes reimbursing the employee on receipt of an expense claim.

2.2 Repairs paid for under an insurance policy

If a car is repaired under an insurance policy it is normally the case that the insured party arranges for the repair and then claims reimbursement from the insurer. In the case of repairs paid for by a business, VAT incurred on the repair costs is input tax in the same way that VAT incurred on non-insured repair and maintenance costs is. Because an insurance policy only covers the losses incurred as a result of an event, if the insured party is VAT registered, insurers tend to only pay the net cost of the repair, i.e., if a repair costs £1,000 + £200 VAT, the insurer pays the business £1,000 on the assumption that it can recover £200 from HMRC. Partially or fully exempt businesses, which cannot recover all/any of the VAT incurred on a repair may need to contact their insurer to arrange for the irrecoverable VAT cost to be reimbursed in addition to the net cost.

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