Fuel costs are one of the biggest ongoing expenses for many UK businesses. This can increase your business operating costs, but if you are a VAT-registered business, reclaiming VAT on fuel can help you reduce these costs. However, you should know that HM Revenue and Customs (HMRC) has specific rules about when you can claim VAT, how much you can reclaim, and what records you must keep.
Claiming incorrect VAT could result in penalties. So, it is crucial to understand HMRC VAT rules to avoid costly compliance checks. This guide explains the UK rules for reclaiming VAT on petrol, including eligibility and the records you need to support your claim.
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Can a Company Claim VAT on Fuel?
Yes, your company can reclaim VAT on fuel in the UK if it is VAT-registered, the fuel was purchased for business purposes, and you have a valid VAT receipt or invoice.
Generally, reclaiming VAT on fuel can include petrol, diesel, and other qualifying road fuel. However, the amount you can claim depends on whether the fuel is used exclusively for business and for private journeys.
Alternatively, if the vehicle is used for both personal and business trips, you can use the HMRC flat-rate fuel scale charge to account for private use instead of tracking exact mileage. And, if you use the fuel scale charge method, you must use the updated rates from the appropriate date.
Who is Eligible for Reclaiming VAT on Fuel In the UK?
In the UK, if you are a sole trader, a partnership, a limited company, or a VAT-registered organisation, you may claim VAT on fuel. You can claim if you are using company cars, or commercial vehicles for work, provided they meet HMRC’s conditions.
When Can You Claim VAT on Petrol?
As mentioned above, you can reclaim VAT on petrol if your business is VAT-registered, the fuel is used for business purposes, and you have a valid VAT receipt. Business journeys include travelling to meet clients, driving between work sites, or making deliveries.
Different VAT rules apply when you use the same car for private and business journeys. You can reclaim VAT on business fuel or reclaim all VAT by applying the fuel scale charge for private use; it depends on your situation.
Reclaiming VAT on fuel differs in the following scenarios:
Business Use Only
You can reclaim full VAT on petrol if the vehicle is used only for business purposes. Also, you can claim if you have valid VAT receipts.
Mixed Business and Private Use
You can claim all VAT on fuel through the fuel scale charge to account for private use, or you can claim VAT only on the fuel used for business journeys
Employees Using Their Own Cars
If a company compensates its employees for business mileage, it can claim VAT on the fuel element of the mileage allowance. However, the company must have a valid VAT receipt. This VAT is calculated using HMRC Advisory Fuel Rates.
Leased Company Cars
Remember, reclaiming VAT on fuel is different when it comes to leased company cars. For many leased cars with private use, the 50% restriction applies to VAT on lease payments. Fuel VAT is reclaimed under the normal business fuel rules.
VAT Flat Rate Scheme
Typically, UK businesses using the Flat Rate Scheme cannot reclaim VAT on fuel because fuel is not a qualifying capital asset. The exception for capital assets over £2,000 does not apply to fuel cases.
How to Reclaim VAT on Fuel?
Your options for reclaiming VAT on fuel are:
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Claim All VAT and Apply the Fuel Scale Charge
A business can reclaim all of the VAT on fuel purchases if it pays for all fuel, including private fuel for a company car. Then, it must account for private use by applying the HMRC fuel scale charge.
Keep in mind that the fuel scale charge is a fixed VAT amount based on the length of your VAT accounting period and your vehicle’s CO₂ emissions.
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Reclaim VAT Only on Business Fuel
Another option for reclaiming VAT on fuel is to claim only business fuel. You can choose to reclaim VAT only on fuel used for business journeys instead of using the fuel scale charge. Keep accurate mileage records and valid invoices because you cannot claim VAT without them.
Don’t Reclaim VAT
You can choose not to reclaim VAT on fuel, particularly if private use is significant or the administrative work outweighs the potential savings.
There are some important exceptions to reclaiming VAT on fuel that you should know. Typically, you cannot reclaim VAT on day-to-day fuel purchases if your business uses the VAT Flat Rate Scheme. Furthermore, if your business is not VAT-registered, you cannot reclaim VAT on fuel.
What are VAT Fuel Scale Charges?
HMRC simplifies reclaiming VAT on fuel used for both private and business journeys in a company car with fuel scale charges. Instead of calculating the exact amount of VAT relating to private fuel use, you account for a fixed VAT amount based on the length of your VAT accounting period and your vehicle’s CO₂ emissions. This means you do not have to keep detailed records of mileage.
HMRC updates the fuel scale charge tables each year, usually from 1 May, so it is recommended to visit the HMRC official website regularly.
Moreover, the fuel scale charge is included on your VAT return as output tax. This increases the amount of VAT you owe. It allows reclaiming VAT on fuel purchases while accounting for private fuel use.
For example, the £90 fuel scale charge is added to your VAT return as output tax. This effectively reduces the amount of VAT you recover to reflect private fuel use.
Example: How Does Scale Charge Work?
Let’s understand VAT on fuel and fuel scale charge with a hypothetical example:
Assume that you are a VAT-registered business owner and you are using your company car for both private and business purposes. During one VAT quarter, you spend £600 on fuel, including £100 VAT.
Now you are reclaiming the full VAT on fuel, which is £100 VAT. Assume that the fuel scale charge for that quarter is £90 (based on your vehicle’s CO₂ emissions). As a result, you keep a net VAT benefit of £10 (£100 reclaimed − £90 paid back) without having to calculate the exact amount of private fuel used.
How Much VAT Do You Get Back on Fuel?
The amount you recover by reclaiming VAT on fuel depends on whether your business is VAT-registered and how the fuel is used. You can claim the full VAT if the fuel is used exclusively for business. However, if you use it for business and private use, you can either reclaim all the VAT and account for private use using the HMRC fuel scale charge or reclaim VAT only on the business fuel.
If your business employees use their own vehicles for business, you can claim VAT only on the fuel element of the mileage allowance.
Can You Reclaim VAT on 45p Mileage?
Yes, you can reclaim VAT on the 45p mileage allowance, but only on the fuel portion of the rate. You cannot claim VAT on the full 45p. To claim VAT on 45p mileage, you must use HMRC’s Advisory Fuel Rates (AFR) and hold valid VAT fuel receipts.
AFR helps companies reimburse employees for business travel in company cars or calculate private fuel repayments. For more details, visit the official HMRC website.
What Records Do You Need For Reclaiming VAT on Fuel?
To support your claim on fuel, keeping proper records is important. It helps support your VAT claim if HMRC requests evidence. You should keep records of:
- VAT fuel receipts for all fuel purchases
- VAT invoices
- Fuel cards
- Mileage logs
- Business travel records
What If I Don’t Claim Any VAT on My Fuel?
Sometimes, businesses don’t claim VAT because of the small amount. Some businesses also choose not to claim when the administrative work involved outweighs the benefit.
This can be a practical option if keeping mileage records or applying the HMRC fuel scale charge would take more time than the VAT savings are worth.
What are the Common Mistakes to Avoid?
You should avoid these common errors when reclaiming VAT on fuel:
- Keeping incomplete records
- Claiming VAT without valid VAT receipts
- Forgetting to use fuel scale charge rates.
- Forgetting to account for private fuel use
- Claiming VAT on non-business fuel purchases.
What are the Tips for Maximising Your Fuel VAT Claim?
To make the most of your VAT recovery, keep all fuel receipts safely and record business mileage accurately.
Furthermore, you should review your VAT records regularly and review whether the fuel scale charge is cost-effective. Always separate business and private journeys where possible.
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The Bottom Line
UK businesses need to understand reclaiming VAT on fuel as it can help to recover legitimate expenses while staying compliant with HMRC requirements. Whichever option you choose to reclaim VAT on fuel, make sure that you have accurate records and valid mileage invoices.
Need help to reclaim VAT on fuel? We have got you covered. At MicroEntityAccounts, we have the best professional accountants who can help you calculate the correct VAT reclaim, prepare accurate VAT returns, and maintain compliant mileage records.
Disclaimer: All the information provided in this article is general in nature; it does not intend to disregard any professional advice.
