Generally, VAT recovery on the purchase of a motor car is wholly blocked.

To recover VAT, the vehicle must be used exclusively for business purposes and not be ‘available for private use’.

If the company leases the car, the ‘block’ can be reduced, and partial recovery is possible. A standard 50% block applies to the input VAT on the lease payments (to account for private use).

This means the business can reclaim the remaining 50% of the VAT.

If the lease includes a separately invoiced maintenance charge, the business can typically recover 100% of the VAT on that maintenance element (subject to the normal input tax recovery rules).

If the lease contract is terminated early, these fees are treated as further consideration for the lease, so the 50% block will also apply to them.

If acquiring the vehicle via personal contract purchase (PCP) or hire purchase (HP), further steps must be considered to determine if the agreement is categorised as a supply of goods in the case of the purchase of a car, or as a supply of services for the lease of a car, for VAT purposes.

With private use involved, purchasing allows for 0% VAT recovery, whereas leasing allows a standard 50% recovery on the rental fee and potentially 100% on maintenance. Therefore, leasing can be more advantageous for VAT recovery in this scenario.