Reclaiming VAT on Fuel: How it Works

One of the easiest ways for employees to visit a customer is to jump in their car and drive to the customer’s site. Claiming back the fuel on the trip through expenses is easy for the employee too – if they have an automated expense management system with mileage integration. However, it’s not as easy for the finance team, to reclaim the VAT on the fuel!

So, finance team…here is what you need to know about reclaiming VAT on the fuel paid out by employees, when they’re travelling for business.

Four ways to reclaim VAT on fuel paid for business trips

1: 100% reclaim

  • HMRC says you can reclaim 100% of the VAT incurred on fuel paid for business purposes. But … you have to be able to prove that the fuel has been used 100% for business use only and that no private journeys have been undertaken. (This is almost impossible unless your business is a taxi firm or a driving school).

2: 100% reclaim + a fuel scale charge

  • You can reclaim 100% of the VAT incurred on fuel paid for by the business if you also pay a VAT fuel scale charge. HMRC says “It’s a way of accounting for output tax on fuel that your business buys but that is then used for private motoring”. (This is calculated based on the car’s C0² emissions – and unless the car does a lot of miles and has low fuel emissions, it can work out expensive). This reclaim method is one of the easiest for the VAT auditors to check and catch finance teams out on, as companies forget to pay the fuel scale charge, or update HMRC when the fuel scale charge changes every year.

3: Claim only the business mileage

  • You can reclaim the VAT on the business element of any fuel purchased, by keeping a detailed mileage log. You then do the maths to work out how much of the VAT on that purchase can be reclaimed. Alternatively, you can use the advisory fuel rates published by HMRC on 1st June 2013.

4: Claim no VAT at all

  • In HMRC’s guide, this is included as an option, but if you choose to pay no VAT, then you need to apply this across all the vehicles in your business, including commercial vehicles – so you won’t be able to claim VAT on mileage travelled in the company delivery van either.

Four year rule!

If you’ve kept your receipts or necessary evidence, it’s possible to claim unclaimed VAT on fuel used for business trips, for up to four years. Likewise though, HMRC can come after you for four years’ worth of receipts, to prove you can support your VAT reclaims.

Reclaiming the VAT on fuel used by your business and employees can help your company make money – but get it wrong, and it can cost you. It’s probably best to use an outsourced compliance service because, done right, this can help improve cash flow and keep the tax man happy.

Featured image courtesy of: Images_of_Money