Thinking about buying a used electric vehicle (EV) for your business? Smart move – electric cars are brilliant for the environment and your running costs. But if you’re a sole trader, you might be wondering: “Can I save VAT if I buy the car through my business?”
The short answer? It’s complicated. But don’t worry – we’ll break it down in simple terms so you know exactly what you can and can’t do.
Note: If you’re a limited company director considering a company car instead, check out our guide on the changing world of company cars – the rules and tax implications are quite different!
The Big Question: Can I Claim VAT on Buying a Used EV?
Nope. Sorry.
HMRC has pretty strict rules here, and they don’t care how green your intentions are. If the car is going to be used for any personal driving – think weekends, school runs, popping to the shops, or holidays – then you can’t claim the VAT on the purchase. Even if 90% of your driving is for work.
To claim VAT on a car purchase, it must be:
- 100% for business use only
- Stored at business premises (not your driveway)
- Used under strict controls (like a pool car that employees book)
So unless you’re planning to lock it up at the office and never use it for anything personal – you’re out of luck on the VAT front.
This rule applies whether you’re buying a shiny new Tesla or a three-year-old Nissan Leaf. HMRC doesn’t discriminate when it comes to blocking VAT claims on cars.
What About VAT on Charging and Running Costs?
Here’s the good news: You can claim some VAT on the running costs.
You can reclaim VAT on:
- Public charging (those rapid chargers at motorway services)
- Electricity (if you charge at home – but only the business proportion)
- Repairs, insurance, and servicing
- MOTs and any other maintenance
But here’s the catch: You can only claim the business-use proportion. So if 60% of your driving is for work, you can claim 60% of the VAT on those costs. Make sure you’ve got proper receipts and track your mileage religiously – HMRC love a good mileage log.
Pro tip: Keep a simple mileage diary. Note down business trips, total mileage, and work out your business percentage. Apps like MileIQ can make this dead simple.
What If I Lease the EV Instead?
Here’s where it gets interesting.
If you lease the vehicle instead of buying it outright, HMRC allows you to reclaim 50% of the VAT on lease payments – even if there’s some private use. That’s a fixed rate, regardless of how much personal vs business driving you actually do.
For many sole traders, this makes leasing a much more attractive option from a VAT perspective. You’re not getting the full VAT back, but 50% is better than nothing – and it’s guaranteed.
Leasing also means:
- Lower upfront costs – no big deposit to find
- Predictable monthly payments – easier for cash flow
- Warranty typically included – fewer nasty repair surprises
- Option to upgrade every few years as EV tech improves
What About Capital Allowances?
This is a tax thing (not VAT), but it’s worth knowing about because it can still save you money.
If you buy a used EV:
- You can claim 18% per year in capital allowances through the Annual Investment Allowance
- This reduces your taxable profits over time (so you pay less corporation tax or income tax)
If you buy a new EV:
- You might get a 100% first-year allowance – meaning you can write off the full cost in year one
- Check the latest rules, as these change regularly
So even if you can’t claim the VAT back, you’re still getting meaningful tax relief. It’s not as good as getting the VAT back immediately, but it’s something.
The Maths: Should You Buy or Lease?
Let’s say you’re looking at a £15,000 used EV (including VAT at 20%).
If you buy:
- VAT you can claim back: £0 (assuming any personal use)
- Capital allowances: £2,700 tax relief over time (18% × £15,000)
- You own the car at the end
If you lease at £300+VAT per month:
- VAT you can claim back: £30 per month (50% of £60 VAT)
- That’s £360 per year back in your pocket
- No ownership, but lower commitment
The best choice depends on your cash flow, how long you want to keep the car, and your personal preferences. Need help with the numbers? We can run the calculations for your specific situation.
Quick Summary: What You Can and Can’t Do
✅ You CAN claim VAT on:
- Charging costs (proportional to business use)
- Repairs, insurance, and servicing (proportional to business use)
- 50% of lease payments (regardless of personal use)
❌ You CAN’T claim VAT on:
- Buying any car that has personal use (even 1%)
- 100% of running costs (unless it’s 100% business use)
✅ You CAN claim tax relief through:
- Capital allowances on the purchase price
- Business expenses for running costs
Final Thoughts
If you’re a sole trader wanting to use your EV for both business and personal journeys, you won’t be able to reclaim VAT on the purchase. But you can still get meaningful tax relief through capital allowances, and you can reclaim VAT on running costs proportionally.
Want a more VAT-friendly route? Leasing might be the smarter option – that guaranteed 50% VAT recovery on lease payments can add up over time.
Electric cars are still a brilliant choice for business owners. Lower running costs, no congestion charges in most cities, and you’re doing your bit for the planet. The VAT rules might be a bit annoying, but don’t let them put you off going electric.
Thinking about a company car instead? If you’re running a limited company, you might want to consider getting an electric vehicle as a company car rather than buying personally. The tax treatment is completely different – and often more favourable. Check out our complete guide to company cars and the recent tax changes to see if that route might work better for you.
Need help deciding what’s best for your situation? We can crunch the numbers, work out the tax implications, and show you which option saves you the most money. Because that’s what we’re here for – making tax and business finances dead simple.
Got questions about EVs, VAT, or anything else business-related? Give us a shout. We’re here to help.
