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HMRC internal manual

VAT Input Tax

HM Revenue & Customs
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Motoring expenses: definition of input tax block and qualifying cars

Input tax block
Circumstances where input tax recovery is allowable
Definition of qualifying car
Definition of relevant purpose 

Input tax block

Since VAT came in there has been an input tax block on cars. This acts as a proxy for the taxation of private use. The block restricts the right to claim input tax. If it was not there the business would have to pay output tax on any private use of the car.

The block originally applied to all cars. However, there are now times where input tax on the purchase of motor cars can be claimed.

Circumstances where input tax recovery is allowable

A business can claim input tax relief on the purchase of a qualifying car used for a relevant purpose.

Definition of qualifying car

A qualifying car is a car on which the full input tax block has not been incurred by the current or any previous owner. Therefore, some used cars will also be qualifying if the previous owners were able to recover VAT on their purchase in full. Cars sold on by driving schools, daily rental or leasing companies are likely to be qualifying cars.

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Definition of relevant purpose

You can recover the VAT when you buy a car if it:

  • is part of the stock in trade of a motor manufacturer or dealer, or
  • is used primarily for the purposes of taxi hire; self drive hire or driving instruction; or
  • is used exclusively for a business purpose and is not made available for private use.

This offers three distinct routes for the recovery of input tax on cars. Businesses engaged in taxi hire, self drive hire or driving instruction need only show that the car will be used primarily for the purposes of their business. Most other businesses, apart from dealers and manufacturers, will need to show:

  • exclusive business use; and
  • non-availability for private use.