VAT treatment of motoring expenses

31 Oct 2023

The VAT treatment of motoring expenses is relevant to any business that incurs VAT on motor expenses. HMRC’s VAT notice 700/64 entitled 'Motoring expenses', which provides guidance on this topic, has recently been updated.

The new version of the notice replaces the previous version published in April 2022. The notice has been updated to explain the VAT rules when a business sells a second-hand vehicle in Northern Ireland that was purchased in Great Britain (England, Scotland and Wales, not including Northern Ireland).

The notice explains:

  • What a car is for VAT purposes.
  • The VAT treatment of motoring expenses incurred by businesses.
  • What vehicles qualify and details of the input tax block on certain motoring expenses.
  • When you must account for VAT.
  • How to work out output tax.
  • The records businesses must keep.
  • What businesses can and cannot treat as input tax.

The notice also includes information on the VAT scale charge. If a business reclaims VAT on fuel that is used for private purposes, they must pay a VAT scale charge based on the carbon dioxide emission band of the car. This is a fixed charge that is not related to the amount of actual use.

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