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Claiming VAT on Fuel in Your Small Business

Find out how to claim back VAT on fuel in a small business VAT returns, using one of the four ways permitted by HMRC.

1. Is there VAT on Fuel?

There is VAT on petrol, diesel and other fuels used by vehicles at the standard rate of VAT, currently, 20%. Only VAT registered businesses can claim back VAT on expenses and when it comes to fuel HMRC sets out certain rules that need to be followed when calculated what can and cannot be reclaimed. The rules are strict, but that is because, after years of people making fraudulent VAT claims, they have been forced to lock down the rules.

Confused by VAT? Read this guide to find out more about What VAT is and How it Works

2. How to Claim Back VAT on Fuel

There are four options available when it comes to getting back the VAT on fuel (which includes petrol and diesel):

  • Reclaim 100% of the VAT on fuel that is used purely for business purposes only;
  • You can reclaim 100% of the VAT on fuel and use the fuel scale charge where there is personal use;
  • Reclaim VAT on fuel used for business mileage only;
  • 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:

2.1 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.

2.2 100% 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 so 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.

2.3 Reclaim VAT On Business Mileage Only

The third option is to claim VAT on mileage instead. That means you need to keep a detailed log of where you have travelled along with VAT receipts to support the claim (download a business mileage tracker here to help with your VAT 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.

2.4 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.