Vehicle Hire

This Overheads code records the cost of vehicle hire incurred in running the business. As an expense account, it normally carries a debit balance: debit entries increase the balance (recording new costs) and credit entries decrease it (for example, correcting an error or a refund received).

Real-world examples

Removals or trades business (van hire)

A removals or trades business hires an extra van for a busy period or a one-off large job. Vans and other commercial vehicles carry no VAT restriction on hire, so a £360 hire invoice (£300 net, £60 VAT) is a debit of £300 to 7401 (Vehicle Hire), a debit of £60 to 2201 (Purchase Tax Control Account), and a credit of £360 to 2100 (Creditors Control Account) — full input VAT recovery, the same as hiring any other business equipment.

Consultancy (car hire for a business trip)

A consultancy hiring a car for a client visit away from base runs into the same restriction that applies to leasing any car with potential private use: only 50% of the VAT is recoverable, regardless of whether the car was actually used privately, because HMRC's rule is based on availability for private use, not actual use. On a £360 hire invoice (£300 net, £60 VAT), only £30 of the VAT can be reclaimed — a debit of £330 to 7401 (the net cost plus the irrecoverable half of the VAT), a debit of £30 to 2201, and a credit of £360 to 2100.

Commonly confused with

Because code 7400 (Travelling) sits right next to this one in Overheads, it's a common mis-posting target. Code 7401 is specifically for vehicle hire, while 7400 covers travelling — similar in nature, but keeping them separate is what makes the overheads section of your management accounts meaningful rather than a single lumped total.

What a mis-posting here costs you

An error posting to Vehicle Hire won't change total overhead spend, but it will distort the overheads breakdown that's usually reviewed line by line each month to spot cost creep.

Other codes in Overheads