A VAT registered business can only claim 100% VAT on vehicle fuel costs if the vehicle is used exclusively for business purposes. This would normally only apply to a van or commercial vehicle. If the vehicle is used for both business and personal trips, then there are 3 different ways of reclaiming tax on the fuel costs.
OPTION 1*. Claim the full VAT on your fuel as “input tax”, and then apply the correct fuel scale charge for your vehicle, using HMRC’s table of charges, which are based on the CO2 emissions rating of your vehicle. The scale charge is treated as “outputs”, and the VAT element is added to your output tax. You can think of it as the business charging you for the private use of fuel. The net amount of the charge is added to your net outputs. The scale charges only apply to cars. It is assumed that most commercial vehicles cover little or no private mileage.
OPTION 2. Keep detailed records of your business and private mileage and reclaim VAT only for the fuel that is used for business trips. You must keep all your fuel receipts as well as your mileage records to back up your claim. If you use a commercial vehicle and there is a significant level of private mileage, you will need to keep records and adjust your claim accordingly. If it is the only vehicle you own it is likely to have private mileage. If it is not your only vehicle and the private use if negligible you can ignore it.
OPTION 3. If your business mileage is very low you can choose not to claim any VAT on any business vehicle. If you use more than one vehicle for business and choose not to claim VAT on one vehicle you cannot then reclaim fuel on another.
*NOTE re option 1: HMRC have released a new table of scale charges which apply from 1st May 2018:
If you make mileage payments to employees, including directors who use their own cars, the business can claim VAT on the fuel element, but you must still ensure that employees and directors submit fuel VAT receipts, proving that they have incurred costs and VAT on fuel.
If you reimburse mileage at 45p and 25p, where employees use their own car, you cannot recover VAT on the total paid, as these rates are calculated to include depreciation, repairs and insurance as well as fuel.
Instead you would only be able to recover VAT on the fuel element, using HMRC’s “advisory fuel rates”. These are based on the engine size and type of fuel.
To see HMRC’s table of advisory fuel rates see here:
The VAT Flat Rate Scheme
If you use VAT Flat Rate Scheme no VAT is claimed back on fuel and no scale charge is required.
Disclaimer: This is only a very brief review of the rules, and you are advised to familiarise yourself with all the rules on HMRC’s website. Or call us if you require further help.