Hiring a car for work is simple. Working out what you can claim back is less so. VAT on car hire is usually only half recoverable, tax relief can be restricted on some cars, and a hire car used privately by an employee can be taxed as a company car.

The good news is that the rules depend mostly on two things you control: how long you hire for and what the car is used for. This guide explains the VAT and tax rules on business car hire in plain terms, using HMRC's own guidance.

Can you reclaim VAT on car hire?

Usually you can reclaim half of it. When a VAT-registered business hires or leases a car, it normally can't recover 50% of the VAT charged on the hire, because HMRC assumes some private use. The other 50% can be reclaimed in the normal way (HMRC VAT Notice 700/64, section 4).

The 10-day rule for short hires

There's an important exception for short hires. HMRC's guidance says that if you hire a car "for no more than 10 days" to use specifically for your business, the 50% block doesn't apply. So a car hired for a three-day sales trip, and used only for that trip, can qualify for full VAT recovery, subject to the normal VAT rules.

Replacement cars are treated differently

The 10-day rule doesn't help if the hire car replaces a company car that is off the road, for example after an accident or during a long repair. In that case HMRC applies the 50% block from the first day, because the replacement takes over the role of a car that was available for private use.

Other points to know

• Optional extras are covered by the 50% block too, unless they are supplied and shown separately from the hire on the VAT invoice.
• Taxi and driving school businesses can recover all the VAT on a car used mainly for those purposes.
• Businesses not registered for VAT can't reclaim VAT at all. The VAT simply forms part of the cost.

Is car hire tax deductible?

Yes. Hiring a car for business is an allowable expense, so the cost can be deducted from your profits. But for longer hires of higher-emission cars, part of that deduction is taken away.

The 15% restriction for cars over 50g/km

Since April 2021, if a hired or leased car emits more than 50g/km of CO2, 15% of the hire charges are disallowed for tax (HMRC BIM47714). The threshold used to be 110g/km, so older guidance you find online may be out of date. Zero emission cars are never restricted. Check the CO2 figure for the specific car you hire.

Short hires of 45 days or less are exempt

The restriction doesn't apply to a car hired for 45 consecutive days or less (HMRC BIM47750). HMRC's own example is a business that hires a car for 40 days at a cost of £1,000: all £1,000 is deductible.

HMRC also stops businesses splitting one long hire into short ones. Separate hires of the same car are added together if there is a gap of 14 days or less between them (HMRC BIM47755), and the exemption doesn't apply to arrangements made to avoid the restriction.

Sole traders on the cash basis

The 15% restriction doesn't apply to businesses using the cash basis, which is now the standard way for sole traders and many partnerships to work out their profits. If you're self-employed, your accountant can confirm which basis you use.

Does a hire car count as a company car for tax?

It can. HMRC's company car rules apply when a car is made available to an employee because of their job and is available for private use (HMRC EIM23020). The rules don't depend on who owns the car, so a hire car an employee takes home and uses privately can create a benefit in kind, even for a few weeks.

There's no benefit in kind if the car qualifies as a pool car. HMRC's main conditions (EIM23450) are that the car is:

• made available to, and actually used by, more than one employee
• not ordinarily used by one employee to the exclusion of the others
• used privately only where that use is merely incidental to business use
• not normally kept overnight at or near any of the employees' homes

A hire car used for a single business trip and returned to the depot is unlikely to raise a benefit in kind question. A car given to a new starter for a month while their company car arrives is different, and is worth checking with your payroll team.

Short-term or long-term hire: what changes?

• Up to 10 days, business use only: full VAT recovery may be possible, and the 15% tax restriction doesn't apply.
• 11 to 45 consecutive days: the 50% VAT block applies, but hire charges remain fully deductible for tax.
• Over 45 consecutive days: the 50% VAT block applies, and 15% of the hire charges are disallowed if the car emits more than 50g/km.
• A replacement for an off-the-road company car: the 50% VAT block applies from day one, whatever the length of hire.

Choosing a zero emission hire car removes the 15% restriction for longer hires. For needs measured in years rather than months, leasing is usually the comparison to make, and AMT's business car leasing pages explain how that works.

Records to keep

Good records make every claim easier to support:

• the VAT invoice from the hire company, with any optional extras shown separately
• the hire dates, so you can show the length of each hire and the gaps between them
• the business purpose of the hire and who drove the car
• the car's CO2 figure, for hires longer than 45 days
• whether the car was replacing a company car that was off the road

Hiring cars for your business

AMT Rent provides short and long-term car hire for businesses, including cover for new employees, seasonal peaks and cars off the road after an accident, with depots in Leeds, London, Edinburgh and Birmingham and a delivery and collection service. Our guide to renting a business fleet covers what else to think about, and the car rental pricing guide explains how hire costs are worked out.

This article is general information, not tax advice. Your accountant can confirm how the rules apply to your business. Rules checked on 9 October 2026: HMRC VAT Notice 700/64 (updated 19 December 2024); HMRC Business Income Manual BIM47714, BIM47750 and BIM47755; HMRC Employment Income Manual EIM23020 and EIM23450.

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