I run a car rental company — is renting a car with a driver treated differently for VAT than self-drive rental?

Self-drive car rental — whether a short daily hire or a long-term lease running months or a year — carries the standard 5% VAT rate, with no distinction between short-term and long-term. The reasoning is that you're renting out an asset (the vehicle), not providing a transport service, so VAT applies to the rental value the same way it would on any other commercial lease, whether the customer is an individual or a company.

When a car is rented out with a driver (rent-a-car with driver / limousine service), the common assumption that this automatically falls under the "local passenger transport" exemption is wrong in most cases. That exemption is limited to specific qualifying means of transport — buses and taxis licensed under an approved public transport franchise — and doesn't automatically extend to a limousine or private driver arranged directly between you and the client. The safer default treatment is to charge 5% VAT on the chauffeur-driven service as well, and not assume the exemption applies unless you hold a clear licence or franchise proving it genuinely is qualifying public transport.

The security deposit taken at the start of a rental gets entirely different treatment. A genuinely refundable deposit that's returned to the customer once the car comes back undamaged isn't consideration for anything — so it sits outside VAT scope at the time it's collected. But if part of it gets retained as compensation for damage, a violation, or an extended rental period, that portion needs to be assessed on its own — if it's genuinely compensation for damage it generally stays outside VAT scope, but if it's really an additional rental charge (like an extension), that's taxable consideration just like the original rental and needs to be invoiced properly, not just recorded as a deduction from the deposit. RASEEKH reviews car rental contracts so each element — rental, driver, deposit — is classified correctly from the outset, instead of a mismatch turning up later on the VAT return.