The input tax block, the narrow exceptions, the 50% restriction on leases, the four ways to handle fuel, and why the layout of a lease invoice decides what you get back.
Paragraph 3.1 of VAT Notice 700/64 is the starting point: you cannot normally recover VAT on buying a car. The exceptions are narrow and each has to be met on its own terms.
| Exception | Condition | Reference |
|---|---|---|
| Stock in trade | Held by a manufacturer or dealer intending to sell within 12 months | 3.1, 3.2 |
| Taxi, driving instruction, self-drive hire | Used primarily for that purpose, and a qualifying car | 3.1, 3.4 |
| Exclusive business use | Only business journeys, and not available for private use | 3.1, 3.5 |
| Pool car | Normally kept at the principal place of business, not allocated to an individual, not kept at an employee's home | 3.7 |
Vans and commercial vehicles are not cars for this purpose, so the block does not reach them. On a £30,000 purchase that is £6,000 of difference decided entirely by how the vehicle is classified.
Paragraph 4.2: where a qualifying car is leased for business, 50% of the VAT on the rental is blocked and the other 50% is recoverable. The notice says plainly that the block is there to cover the private use of the car — so it applies whether or not any private use actually occurs. Arguing that the car is never used privately does not unlock the other half.
Full recovery is available under 4.3 only where the qualifying car is used primarily for hire with a driver carrying passengers, or for driving instruction.
Then paragraph 4.5, which is where money is quietly lost. The block covers the VAT on rental charges including optional services, unless they are supplied and identified separately on the invoice.
A qualifying car on contract hire. Rental £400 + VAT £80 a month, maintenance £50 + VAT £10 a month.
| Maintenance shown separately | Bundled into one rental line | |
|---|---|---|
| VAT on rental | £80 — 50% recoverable = £40 | £90 — 50% recoverable = £45 |
| VAT on maintenance | £10 — fully recoverable | inside the block |
| Recovered per month | £50.00 | £45.00 |
| Recovered per year | £600.00 | £540.00 |
£60 a year, per car, decided by how the leasing company lays out its invoice. Across a ten-car fleet over a four-year agreement that is £2,400 — and the fix is a phone call asking the lessor to itemise maintenance. Paragraph 4.5 also confirms that excess mileage charges forming part of a separate maintenance supply are outside the block.
| Option | What it means | Suits |
|---|---|---|
| Claim the VAT charged | Subject to the restrictions at 9.2 and 9.3 | No private fuel at all |
| Claim it and apply the fuel scale charge | Flat-rate output tax on private use, based on CO2 emissions | High business mileage, private use funded too |
| Detailed mileage records | Split business from private and claim only the business share (9.4, section 11) | Low mileage, good records |
| Claim nothing | No input tax, and no output tax on private fuel (9.6) | Low mileage, no appetite for records |
Paragraph 2.3 defines a qualifying car as one that has never been subject to the full input tax block, because the VAT was recovered in full by the business or a previous owner. Such a car is sold on a normal tax invoice with VAT on the full selling price.
A car that is not qualifying arrives without a VAT invoice, and there is no input tax in it for anyone. That is why dealers advertise cars as "VAT qualifying": to a private buyer it simply means a higher price, while to a business buyer who can recover it the car is effectively a sixth cheaper. The phrase describes the car's VAT history, not its condition.
References above are to HMRC's VAT Notice 700/64, linked in full. This page is a general reference and not advice on a particular business — if your own arrangement does not match what is set out here, that is exactly the sort of thing worth sending over.