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573 – Contract hire and VAT recoverability

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19 April 2011

New Audi A6 - only 50% of the VAT is recoverable on this and all other business cars on a contract hire lease if there is an element of private mileage

Audi is offering a contract hire finance deal of 10,000 miles per annum over a three year contract hire period for £399 on the Audi A6 2.0 TDI SE 177PS. But in terms of VAT recoverability, only 50% of the VAT charged on the rental can be recovered

  

COMMENT from reader Robert Wastell, director of Comparecontracthire.com on our article about contract hire.

I read your lead business car advice article about contract hire with maintenance and would recommend adding something or clarifying a point about VAT non-recoverability – in other words, the effective rental payable.

Many businesses may not know that VAT is applicable to the base rental and if you are not VAT registered, for example a sole trader below the VAT threshold, you can’t recover any of the VAT.

For VAT registered users, 50% of the VAT charged on the finance element of the contract hire lease and 100% of the maintenance element is recoverable assuming there is some private mileage element.

Robert – thanks for the clarification on VAT recoverability. A good point to remember if you are considering using contract hire to finance your next business car. Ralph Morton, editor.

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Ralph Morton

Ralph Morton

Ralph Morton is an award-winning journalist and the founder of Business Car Manager (now renamed Business Motoring). Ralph writes extensively about the car and van leasing industry as well as wider fleet and company car issues. A former editor of What Car?, Ralph is a vastly experienced writer and editor and has been writing about the automotive sector for over 35 years.

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