Reclaiming VAT on Fuel

There are four ways small businesses can reclaim VAT on fuel. In this guide, I’ll look at each of these four scenarios and how the input VAT should be handled for each.

Is there VAT on Fuel?

Yes, there is VAT on petrol diesel and other fuels used by vehicles at the standard rate of VAT, currently, 20% and can only be reclaimed by VAT registered businesses.

HMRC sets out rules that the rules that you need to follow when it comes to claiming VAT on petrol. They are strict, but that is because, after years of people making fraudulent VAT claims, they have been forced locked down the rules.

The 4 Ways to Claim Back VAT on Fuel

Here are the options when it comes to getting back the input tax on petrol and diesel:

  1. Reclaim 100% of the VAT on fuel that is used purely for business purposes only;
  2. Reclaim 100% of the VAT on fuel and use the fuel scale charge where there is personal use
  3. Reclaim VAT on fuel used for business mileage only;
  4. Claim nothing because your business mileage is so low it would cost you more in fuel scale charges.

Let’s look at each one in detail:

Reclaim 100% of the VAT on Fuel

If your business provides its staff with ‘free’ fuel or a fuel card then it can reclaim all the VAT on the fuel purchased.

You can claim 100% of the VAT on fuel if it is used for business purposes only. You’ll need to be able to prove to HMRC that there is no personal use of the fuel, which can be tricky. It means that in reality, like with claiming 100% on the purchase of a car, very few businesses are able to do it.

100% reclaim and a fuel scale charge

This approach is more common, especially where companies provide their staff with fuel cards which they then use to fill up their tanks to pay for fuel used both for business and personal reasons.

It’s hard to track which miles were used for business or privately HMRC sets out a simple rule on how to handle VAT reclaim. The business needs to make an adjustment each time they submit a VAT return to pay back some of the VAT at a set rate. This adjustment reflects the private use element of the fuel and is known as the fuel scale charge which is based on the CO2 emissions of the car.

Reclaim VAT On Business Mileage Only

The third option is to reclaim 100% of VAT on fuel for actual business mileage travelled. That means you need to keep a detailed log of where you have travelled along with VAT receipts to support the claim.

This can be onerous so as an alternative you can choose to claim a flat rate (known as the advisory fuel rate) for business mileage travelled and claim back VAT on this amount.

Claim No VAT

Some people simply choose to claim nothing for their business fuel, covering the costs personally. This mainly happens because their business mileage is so low, the amount reclaimed in fuel and VAT is so small. Claiming VAT on fuel requires full record-keeping and the fuel scale charge can end up costing more than the actual fuel used.

If you need help with reclaiming VAT on Cars and Fuel then call the HMRC VAT Helpline on 0300 200 3700.

New Here? Learn how to set up the financial side of your business with these easy to understand guides and resources:

  • Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
  • Tax Records and Bookkeeping – Understand what tax records you’ll need to keep and how to set up your own bookkeeping system;
  • Self Employment Taxes Explained – Learn what taxes you’ll pay, how much and when;
  • VAT Guides – From registration to de-registration, VAT schemes and thresholds, these guides will take you through the basics every UK small business owner needs to know;
  • Invoice Template – Free template and step-by-step guide so you can get paid by your clients.
Anita Forrest
About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.