This is a question we get asked time and time again: how can I reclaim VAT? And, one of the trickiest areas our customers are often looking for help and advice is VAT on mileage claims. Claiming back VAT on fuel is complex to work out and hard to gather the appropriate evidence and ensure you meet HMRC requirements.
In this blog, we've compiled a list of four ways businesses can reclaim VAT on fuel and petrol expenses for business trips so you can select the approach that works best for you or take a look at this quick explainer video.
Option 1 - Could your business reclaim 100% of VAT?
HMRC says you can reclaim 100% of the value added tax incurred on fuel paid for business purposes. However, you must be able to prove that the fuel has been used entirely for business purposes and that no private journeys have been undertaken. This is almost impossible unless your business is a taxi firm or a driving school.
Option 2 - Could a fuel scale charge be useful?
You can reclaim 100% of the VAT from business fuel if you also pay a VAT fuel scale charge. It’s a simplified way of taxing private use fuel. So, if a vehicle is used for business and private trips, you can claim VAT on business trips if you're also paying the appropriate fuel scale charge. The charge is based on the CO2 emissions and type of car driven. In some cases, if mileage claim rates are low, it may work out more expensive to claim the VAT back.
This VAT reclaim method is one of the easiest for HMRC auditors to check, and catch finance teams on, as companies forget to pay the fuel scale charge or update the amounts when the fuel scale charge changes every year.
Option 3 - What about claiming business mileage?
The third option is reclaiming the VAT on the business element of any fuel purchased by keeping a detailed mileage claim 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 December 2017.
Option 4 - Perhaps you don't bother with reclaiming VAT
In HMRC’s guide, this is included as an option, but if you choose to claim 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 for claiming business mileage
If you’ve kept your fuel receipts or necessary evidence, it’s possible to claim unclaimed VAT on fuel used for business trips, for up to four years. Likewise, HMRC can come after you for four years’ worth of receipts, to prove you can support your VAT reclaims.
Claiming the VAT on fuel used by your business and employees can help your company save money – but get it wrong, and it can cost you. It’s probably best to use an outsourced and compliant service because, done right, this can put money back in your budget and keep the taxman happy.
Still puzzled on how to successfully reclaim tax on fuel? Download our eBook ‘Expenses, VAT and HMRC Compliance in a Nutshell’ for insights into what HMRC is looking for.