VAT Reclaims on Business Vehicles

Thinking of buying or leasing a new company vehicle? Then you may be entitled to reclaim some of the VAT charged.  

Vehicles within VRT Categories B & C, such as vans, lorries, pick-ups and crew-cabs are generally deductible for VAT, and these are often referred to as commercial vehicles for VAT purposes.

However since 1 January 2009 VAT registered businesses are now entitled to claim back some of the VAT charged on the purchase or hire of vehicles coming within VRT category A, subject to certain conditions , including:

• Only applies to vehicles registered from 1 January 2009;
• A maximum of 20% of the VAT incurred can be reclaimed;
• VAT can only be reclaimed for vehicles that have a level of CO2 emissions of less than 156g/km ( ie CO2 emission bands A, B and C);
• At least 60% of the vehicle's use must be for business purposes;
• If the business is exempt from VAT (e.g. taxi, limousine and other passenger transport) then no VAT can be reclaimed.  Partly exempt businesses can reclaim some, but not all, of the 20%;
• If VAT is reclaimed on a vehicle purchased under this provision, some or all of the VAT must be repaid to Revenue if the vehicle is disposed of (by sale or otherwise) within two years;
• There is no need to charge VAT on the disposal of the vehicle, even though VAT was reclaimed under this provision;

Was VAT charged on the vehicle?

VAT is generally charged, and therefore can be reclaimed, on all sales of business vehicles by motor dealers to VAT-registered traders.  A VAT invoice must be issued by the dealer and retained by the trader.  If the vehicle was purchased from a private individual, or from a trader who is not registered for VAT, then it will not be possible for them to issue a VAT invoice, and no VAT may be reclaimed.  If the vehicle was second-hand, and was purchased from a motor dealer operating the special scheme for second-hand vehicles, there will be no entitlement to reclaim VAT, even though an invoice will be issued for the sale.  Such invoices will include an endorsement to the effect that no VAT may be recovered. 

Full details of how the recovery of this VAT can be achieved, including examples, are available in the information leaflet Deduction of VAT for Certain Business Cars.

Vehicles that come within VRT Category D, and other vehicles not in Categories A, B, or C may be deductible, depending on whether the purchasers are registered for VAT and the uses to which the vehicles are put.

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