There are several options for reclaiming VAT on vehicle fuel used for business, including petrol and diesel. It is quite a complex area so it’s a good idea to seek expert advice if you aren’t sure. There can be severe penalties from HMRC if you make inaccurate or false fuel VAT claims, even if it’s unintentional.
The simplest option is to reclaim 100% of the VAT incurred on fuel bought for business purposes. However, this requires you to prove that the fuel has been used solely for business purposes. Unless your business is a commercial transport firm (such as a taxi firm or lorry haulage business) this is virtually impossible.
Another option is to keep a detailed mileage log of all journeys and work out what proportion of the miles driven were exclusively for business purposes. You can then calculate the correct proportion of VAT to reclaim on these.
If a proportion of the fuel is used for non-business purposes – such as for an employee’s company car – you could still reclaim 100% of the VAT, but you must also pay a VAT fuel scale charge. This effectively taxes the private use element of the fuel. The idea is to save the hassle of detailed mileage recording, for company vehicles that travel a lot of business miles but are also used for other journeys. The fuel scale charge is worked out based on the CO2 emissions of the vehicle. It may not be cost effective to use this scheme unless you’re claiming a large amount of mileage. You can check the current fuel scale charge table on the government’s website.
You don’t have to reclaim any VAT if you don’t want to. But you can’t be selective – you must use the same VAT principle for all your company vehicles. So if you operate a company car fleet and commercial vehicles, you need to use the same approach for all of them. For example, you can’t choose not to claim fuel VAT on company cars used by executives while reclaiming it on your delivery fleet’s fuel usage.
Make sure you retain and file fuel receipts – you need to keep at least the last four years’ receipts as proof of expenditure. It’s important that your employees know this and submit every receipt. HMRC can ask you to produce them as evidence at any time. On the plus side, if you have the receipts, you can retrospectively claim any previously unclaimed fuel VAT going back up to four years.
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