Car Leasing Companies and Contract Hire Companies in the UK

Q & A About Car Leasing & Contract Hire Contracts

This is a guide to your car leasing VAT concerns, and will help you choose the right car leasing agreement or the right contract funding method for your business requirements.

Q. Is VAT recoverable on my initial and regular monthly rental payments?.

A. Yes, but only on two specific contract types “Contract Hire” & “Finance Lease” but this is subject to certain conditions and is slightly more complicated than a simple yes or no, let me explain.

1. Firstly you must be VAT registered.

2. On each of these agreement types there are several elements which make up your monthly rental payments, for example; The capital and interest element is generally called the “Finance Element”, VAT on this charge is only reclaimable at a rate of 50%.

example; if your monthly finance element is charged at £200.00 the VAT would be £35.00, but you would only be able to reclaim £17.50 on your VAT return if that individual vehicle is used by any person or member of the company on any personal or private trip of any kind.

 If that individual vehicle was declared or nominated as a “Pool Car” the VAT position would change providing it was strictly for business use only with “NO” private use at all.  Then and only then would 100% of the VAT be reclaimable,  you must also keep full mileage records for each trip made, which should include the driver name, purpose of the trip, destination, post codes, mileage covered and signed by the user.

The remaining unclaimed 50% of VAT should be offset against your business expenses and is generally known as the “Disallowable” VAT element.

3. The second part of your monthly rental charge is used for “Services” additional services such as the vehicle maintenance and repairs, tyres, breakdown, hire cars etc. if you have decide to include this option within your car leasing agreement. In this element is allowed reclaim 100% of the VAT charged.�