VAT recovery from car leasing payments

tiemadmin • 24 October 2024

The VAT treatment of motor expenses is an important concern for any business that incurs VAT on these costs. Below, we highlight key points to consider regarding the recovery of input tax (VAT) when leasing vehicles.

We have covered below some important points to be aware of concerning the recovery of input tax (VAT) when leasing vehicles.

  • Leasing company recovering VAT on purchase of cars. A leasing company can usually recover the VAT incurred as long as the cars are leased at a commercial rate.
  • Businesses leasing a car and recovering the VAT. If a business leases a ‘qualifying car’ for business purposes they cannot, in most cases, recover 50% of the VAT charged. The 50% block covers the private use of the car. The business can reclaim the remaining 50% of the VAT charged, subject to the normal rules.
  • Cars leased primarily for taxi or driving instruction. A business can reclaim all of the VAT charged on the lease if the car is a qualifying car and the business intends to use it primarily for:
    • hire with a driver for carrying passengers; or
    • providing driving instruction.
  • 50% block applying to self-drive hire (daily rental) as well as leasing. This restriction applies if the car is hired simply to replace an off the road ordinary company car.

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