VAT on Fuel Costs

VAT on Fuel Requirement

To treat VAT on an expense as input tax and reclaim it from HMRC, the expense must be for actual business purposes.

Private vs. Business Fuel Use

When goods or services are used for both private and business purposes, the business must identify the proportion relating to each and only include the business part on the VAT Return.Guy

Fuel Option 1: No Reclamation

A business can choose not to reclaim any VAT on fuel; if this rule is followed, it must be applied to all vehicles including commercial vans.

Fuel Option 2: Full Business

Use

A business can reclaim 100% of input VAT on fuel if all fuel used is strictly for business purposes with no private element.

Fuel Option 3: Mileage Records

An employee keeps detailed records to separate private and business mileage so the business can reclaim VAT on the business-related fuel only.

Fuel Option 4: Fuel Scale

Charge

A scheme where the business reclaims all input VAT on fuel but then pays a specific charge back to HMRC to account for private Use.

Fuel Scale Charge Process

1. Reclaim all input VAT on fuel. 2. Pay a fuel scale charge to HMRC for the private use element.

Fuel Scale Charge Basis

The charge is based on the

CO2

emissions of the vehicle; higher emissions result in a higher charge.

HMRC Fuel Scale Charge Tool

An online calculation tool provided by HMRC to help businesses determine the exact charge based on vehicle data.

Fuel Scale Charge Calculation Period

The charge is typically applied based on the length of the VAT period, such as 3 months.

Fuel Scale Charge VAT

Status

The fuel scale charge value provided in HMRC tables is considered a VAT inclusive amount.

Company Car Fuel Scenario

Applies when an employee is provided a company car for private use and the company covers the cost of all fuel.

Reclaiming VAT on Commercial Vehicles

When buying commercial vehicles (unlike most private-use cars), a business can generally reclaim the VAT.

VAT on Car Leasing

If a business leases a car, it can reclaim 50% of the VAT on the lease charge.

Input Tax Apportionment

The process of identifying how much of an expense relates to private versus business use to ensure correct VAT reclamation.

Input VAT on Fuel

VAT paid by the business on the purchase of fuel for vehicles.

HMRC Reference Material

Documents provided during assessments that include tables of fuel scale charges for application in calculations.

Lower Earnings Limit (LEL)

The wage threshold related to National Insurance, distinct from VAT rules but relevant to overall payroll/ benefit records.

Private Use Adjustments

Adjusting the VAT Return to account for the fact that a portion of the fuel was not used for business purposes.

VAT Return Inclusion

The final step where calculated fuel VAT and Scale Charges are reported to HMRC.