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HMRC internal manual

VAT Valuation Manual

Specific applications: Company vehicles used for private purposes

Private use of a vehicle for no payment

A trader does not have to account for VAT if he allows a car that he has purchased or leased for his business to be used for private motoring free of charge if the input tax on the car was blocked or restricted.

VAT should, however, be accounted for on any private use of a vehicle where there was no such input tax block or restriction. The value for VAT of this supply is determined in accordance with paragraph 7 of Schedule 6 to the VATA 1994 and is based upon the taxable costs of making the vehicle available. Over any period of time, these costs include depreciation, repairs, fuel bills (unless fuel is separately charged for) and other taxable running costs incurred, multiplied by the proportion that the private mileage forms of the total mileage. 

Please see the VAT Input Tax Manual VIT55100.