Reclaiming VAT on petrol and diesel might sound tricky but it doesn’t have to be. If you’re using fuel for business purposes, you may be able to get back some of the VAT you’ve paid.
The rules are there to help but it’s important to know who can claim and how to do it properly.
In this guide, we’ll explain the basics step by step.
You’ll find out:
- What Are The Rules For Claiming VAT On Petrol And Diesel
- How Much VAT Can You Reclaim On Petrol And Diesel?
- Are There Any Restrictions When Reclaiming VAT?
- And Much More…
Let’s get started!
What Is VAT on Petrol and Diesel?
In the UK, VAT is a tax that gets added to most purchases you make. When it comes to petrol and diesel, VAT is charged at the standard rate of 20%. This means when you fill up at the pump, a portion of that cost is VAT.
Can You Reclaim VAT on Petrol and Diesel?
The short answer is: it depends. Generally, you can reclaim VAT on petrol and diesel but only in specific situations. There are some rules that need to be followed before you can claim back the VAT on fuel.
Conditions for Reclaiming VAT on Fuel
To reclaim VAT on fuel, the following conditions must be met:
- Business Use Only: You can only claim VAT on fuel if it’s used for business purposes. This means that any fuel used for personal driving, like a weekend road trip, cannot be claimed back.
- VAT-Registered Business: As mentioned earlier, you must be VAT registered. If your business is not VAT registered, you cannot reclaim any VAT on fuel.
- Correct Documentation: You must have proper documentation like VAT invoices for the fuel purchases. Without this, the tax authorities will not allow you to claim the VAT back.
Who Can Reclaim VAT on Petrol and Diesel?
Only businesses registered for VAT can claim back VAT on fuel. That means if you’re VAT registered, you’re allowed to reclaim VAT on the fuel. However, the fuel must be used for business purposes not personal use.
And what if you use the fuel for both business and personal driving? Well, in that case, you can still reclaim the VAT but only for the business portion. And this is where it gets a bit tricky!
How Much VAT Can You Reclaim on Petrol and Diesel?
When it comes to reclaiming VAT on fuel, the amount you can claim depends on the type of car you drive and how it’s used for business purposes. Here’s a more detailed look at different types of vehicles and how VAT can be reclaimed on fuel for each.
Full VAT on Fuel for Business-Only Vehicles
If you have a vehicle that is used solely for business purposes, you can reclaim the full VAT on the fuel you purchase. This includes vehicles that are exclusively used for business trips, deliveries, or transporting clients. The key point here is that the fuel must not be used for any personal purposes.
For example, if you own a van that is only used for your business operations, you can claim back the full VAT on every fuel purchase as long as you have the correct receipts.
Mixed-Use Vehicles: Partial VAT Claim
For vehicles used for both business and personal reasons such as a car you use to drive to work and also take your kids to school, the situation is different. For mixed use vehicles, there are two main methods for reclaiming VAT on fuel. You need to choose one and apply it consistently for all your mixed-use company cars.
- Option 1: The Fuel Scale Charges
With this option, you claim back 100% of the VAT on all fuel purchases, but then you pay a fixed “output VAT” to HMRC to account for the private mileage. This charge is based on the car’s CO2 emissions and is relatively simple to apply. - Option 2: Detailed Mileage Records
If you prefer a more detailed approach, you can keep a log of all your journeys. This means you will only claim VAT on the fuel used for business trips. While this requires more work, it can save you money if your personal mileage is minimal, as you’ll only be reclaiming VAT for business-related fuel use.
VAT on Fuel Scale Charges for Company Cars
When a business provides a car for its employees or directors, the rules for reclaiming VAT on fuel depend on the car’s usage.
- Exclusive Business Use: If the car is used solely for business purposes, the business can claim back the full VAT on fuel, provided proper receipts are kept.
- Mixed Business and Personal Use: If the company car is also used for personal trips, the business must choose one of the two methods: the Fuel Scale Charge or Detailed Mileage Records. The business cannot simply reclaim VAT on the fuel used for business activities without applying one of these methods to account for the private use.
VAT on Fuel for Leased or Hire Vehicles
If you lease or hire a vehicle for business purposes, you can claim VAT on fuel used for business. The same rules apply as for owned vehicles. You can reclaim the full VAT if the fuel is used solely for business activities. If there is personal use of the vehicle, you will need to calculate the proportion of VAT that relates to business use and claim accordingly.
VAT on Fuel for Hybrid and Electric Vehicles
For a hybrid vehicle, the VAT rules are the same as for a petrol or diesel car. You can reclaim VAT on the fuel (petrol/diesel) used for business, but not the electricity part in many cases.
For electric vehicles, you can reclaim VAT on electricity, but the rules depend on where the car is charged.
- Charging at work or public stations: A business can reclaim VAT on the electricity used for business.
- Charging at an employee’s home: A business cannot reclaim the VAT, as the supply of electricity is made to the employee, not the employer.
- Charging at a sole trader’s home: A sole trader can claim the business portion of the VAT.
VAT on Fuel Cards and Company Fuel Schemes
If your business uses a fuel card or company fuel scheme, the VAT can be reclaimed in the same way as when paying for fuel directly. The key here is to keep proper records and receipts of every fuel transaction. Most fuel cards issue VAT invoices, which makes it easier to claim the VAT back during your VAT return.
What Is a Reasonable Rate for Fuel Expenses?
For UK tax purposes, HMRC provides clear guidelines on what constitutes a “reasonable rate” for fuel expenses, depending on the context in which the vehicle is used, whether by an employee using their own car or a company car.
The rates set by HMRC ensure that fuel reimbursements are both fair and compliant with tax regulations.
When an Employee Uses Their Own Car (Approved Mileage Allowance Payments – AMAPs)
When an employee uses their personal vehicle for business travel, HMRC sets a tax-free rate for fuel expenses, which also accounts for wear and tear on the vehicle. These rates are designed to ensure employees are reimbursed fairly without being overcompensated.
For the tax year 2024/2025, the rates are as follows:
1. Cars and Vans:
45p per mile for the first 10,000 business miles in a tax year.
25p per mile for any business miles over 10,000.
2. Additional Passengers:
If an employee carries additional passengers for business purposes, an extra 5p per mile can be claimed for each qualifying passenger.
These rates cover more than just the cost of fuel. They also account for the overall cost of running the vehicle, such as maintenance, depreciation, and insurance.
When an Employee Uses a Company Car (Advisory Fuel Rates – AFRs)
For company cars, HMRC sets Advisory Fuel Rates (AFRs) that specifically cover the cost of fuel for business journeys. These rates are reviewed quarterly to reflect fluctuations in fuel prices, ensuring they stay accurate and fair.
The rate depends on the engine size and fuel type of the company car. As fuel prices can vary, these rates are updated regularly to align with current market conditions. For example, petrol, diesel, and LPG-powered vehicles each have their own rate, and electric vehicles (EVs) are treated separately.
For electric company cars, HMRC also provides Advisory Electric Rates (AER), which are tailored to the cost of charging the vehicle. These rates are also updated periodically, reflecting differences in charging costs for home versus public charging stations.
How Do I Claim VAT on Fuel?
Claiming VAT on fuel can seem tricky but once you understand the steps, it’s a straightforward process. Here’s how you can do it, with all the details you need, including the VAT Flat Rate Scheme and employees using their own vehicles.
Ensure Your Business is VAT-Registered
To claim VAT on fuel, your business needs to be VAT-registered with HMRC. Without VAT registration, you cannot reclaim VAT on fuel expenses or other business-related purchases.
Keep Fuel Receipts and Track Mileage
Always keep receipts or invoices for all fuel purchases. These will be needed to back up your VAT claims. If you’re using a vehicle for both personal and business trips, it’s essential to track your VAT mileage. You’ll need to determine how much of the fuel is used for business purposes in order to calculate how much VAT can be reclaimed.
Two Methods for Mixed-Use Vehicles
If a vehicle is used for both personal and business purposes, you can claim VAT on the fuel used for business activities. There are two main ways to do this:
Fuel Scale Charges: This method lets you reclaim VAT on all fuel purchases, and then you pay a fixed “output VAT” to HMRC for the personal use of the fuel. The rate is based on the car’s CO2 emissions.
Mileage Records: If you prefer, you can keep a detailed log of your business and personal mileage and only reclaim VAT on the fuel used for business trips.
Businesses Using the VAT Flat Rate Scheme
If your business uses the VAT Flat Rate Scheme, you cannot reclaim VAT on everyday purchases like fuel. However, there is one key exception: Businesses on the Flat Rate Scheme can reclaim VAT on fuel if they purchase capital assets worth over £2,000, such as a new vehicle for the business. This is the only time fuel VAT can be claimed under the Flat Rate Scheme.
The flat rate percentage you pay to HMRC already covers a portion of the VAT for day-to-day expenses like fuel. So, while you can’t claim VAT on individual fuel purchases, capital assets give you the opportunity to do so.
Employees Using Their Personal Cars for Business (AMAPs)
When an employee uses their personal car for business travel, the business can reimburse them through Approved Mileage Allowance Payments (AMAPs). These payments cover not just fuel but also wear and tear on the vehicle.
However, if the company wants to reclaim VAT on fuel, here’s how it works:
- The business needs to obtain VAT fuel receipts from the employee.
- The fuel element of the AMAP reimbursement is calculated using HMRC’s Advisory Fuel Rates (AFRs).
- The VAT reclaimable is one-sixth of the fuel element (for a VAT rate of 20%).
Submit VAT Returns
Once you have all your receipts and have worked out the business portion of the fuel use, include the VAT in your VAT return. This can be done quarterly or annually, depending on your VAT scheme. If you’re using the Flat Rate Scheme, the VAT is already included in your overall VAT payment, so individual fuel claims are not necessary.
Keep Your Records for Six Years
HMRC requires that you keep all fuel receipts, invoices, and mileage logs for at least six years. This ensures that you have the documentation needed to support your VAT claims if you ever get audited.
Correcting Mistakes
If you realise you’ve made an error when reclaiming VAT, you can correct it by adjusting your VAT return. You can either amend the previous return or correct the error in the next one. If you’ve overclaimed VAT, you’ll need to pay the excess back to HMRC.
What Happens if You Make a Mistake When Reclaiming VAT?
Mistakes can happen, but it’s important to correct them quickly. If you’ve claimed too much VAT, you may be required to pay it back to HMRC, along with any penalties or interest. If you’ve missed a claim, you can amend your VAT return within a certain period to make the correction.
What Happens if You Don’t Claim VAT on Fuel?
If you don’t claim VAT on fuel, you lose out on a chance to reduce your business costs. For VAT-registered businesses, this means paying more than necessary for fuel, which adds up over time. However, if your business fuel usage is mixed (both for business and private use), you’ll need to figure out what part of the VAT is claimable.
Could Your Business Reclaim 100% of VAT?
The answer depends on how much of the fuel is used for business activities. If the vehicle is used 100% for business, you can claim back all the VAT. However, if there is personal use, you’ll need to make a reasonable estimate of the business use and only claim VAT on that portion. For some businesses, the easiest route is to work with an accountant who can help ensure you’re following the rules correctly.
Can Unused Fuel Be Reclaimed for VAT?
You can reclaim VAT on fuel purchased for business use, even if some of it remains in the vehicle’s tank at the end of a VAT period. The claim is based on the purchase and its intended business use, supported by proper receipts.
As long as the fuel is eventually used for business mileage, the claiming VAT on mileage is valid, though a fuel scale charge would be necessary to account for any private use.
What Is the Flat Rate Scheme and How Does It Affect VAT on Fuel?
The Flat Rate Scheme is an alternative VAT scheme designed to simplify VAT reporting for small businesses. Under this scheme, businesses pay a fixed percentage of their gross turnover as VAT, rather than reclaiming VAT on every purchase.
If your business is on the Flat Rate Scheme, you generally cannot reclaim VAT on any purchases, including fuel, because the reduced percentage you pay on your turnover already accounts for this.
Can You Reclaim VAT on Petrol and Diesel if You Use a Fuel Card?
Fuel cards are commonly used by businesses to purchase fuel for their vehicles. When using a fuel card, the VAT is usually included on the receipt or invoice. As long as the fuel is used for business purposes and you have the correct paperwork, you can reclaim VAT in the same way as if you paid for fuel with a credit card or cash.
Are There Any Limitations or Restrictions When Reclaiming VAT?
While VAT on petrol and diesel is generally reclaimable for business use, there are some limitations to be aware of:
- Private Use Proportion: If you use the vehicle for both business and personal purposes, you cannot claim VAT on the entire fuel cost.
- No VAT on Certain Fuel Purchases: You cannot reclaim VAT on fuel purchased for non-business use.
- Tax on UK Fuel Certain Vehicles: Some vehicles, such as electric vehicles or hybrid vehicles, may have different rules for claiming VAT.
The Bottom Line
Reclaiming VAT on petrol and diesel is possible but there are several conditions and rules to be aware of. It’s crucial to keep proper records of all your fuel purchases and ensure that the fuel is used for business purposes.
If you’re unsure whether you’re reclaiming VAT correctly or if you’re on the Flat Rate Scheme, it’s a good idea to seek professional advice to make sure you’re following the rules and getting back the tax you’re entitled to.
Disclaimer: The information provided in this article about What Are the Rules for Reclaiming VAT on Petrol and Diesel?, including any text and graphics, is for general informational purposes only. It should not be considered as professional advice
