Whilst the accounting software might auto-extract the full 20% VAT charged on a lease payment, only 50% of the of input tax can actually be recovered in respect of lease rental payments on a car. The reduction is to take account of any private use, which is presumed to occur.
The input VAT restriction applies to any business that provides a lease car to a company employee or director for a period of more than 10 days.
The 50% input tax block applies to the lease element of the contract only. If there is a maintenance element, then this is deemed to be a business expense, and you are allowed to reclaim 100% of the input tax on the maintenance charge as long as it is a separate line item on the invoice.
100% of the VAT can be claimed in certain circumstances.
- Short hires where the hire period is no more than 10 days because the car is required for a specific business trip
- If the car is a valid pool car:
- kept at the business premises;
- never kept overnight at a private home;
- never allocated to a single employee; and
- any private use (such as lunch stops) is incidental.
- A leased car is used exclusively for business purposes, unless it is:
– let on uncommercial terms not at arm’s length; or
– made available for private use by the lessor and not let on hire
Don’t forget that a benefit in kind charge may also arise on the provision of the car. If you have started leasing a car in the last few months and not discussed this with us, please get in touch with us now!
