Claiming VAT on fuel costs - a Pre-Budget reminder!

Les Howard
VAT Consultant
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This is a potential banana skin, so check the rules carefully! Note first that HMRC assume that everyone uses their cars for business AND private purposes. If the reality is different, be prepared to prove it!

(Note also that there are different rules for vans, which broadly allow more VAT recovery. These rules are not covered here.)

Option 1 – only use the car for business purposes.

The Client will need to be able to demonstrate that he only uses the car for business purposes. This will be very difficult for a sole trader, even if he has a separate car for private use. If he can do this, then all VAT on fuel is deductible.

Option 2 – claim input tax on all fuel purchased, and use the scale charge.

He can claim all the VAT, and then account for output tax on the Fuel Scale Charge. Depending on the arithmetic, this can be helpful, as it avoids the need to keep mileage records.  The figures are well-hidden, but you can find them here -

Option 3 – keep mileage records.

The Client can maintain a simple mileage record, showing business journeys, and distances travelled. You would then calculate the percentage of business mileage, and apply it to the fuel purchased.

Better still, if he runs the business through a limited company, he can pay himself up to 45p per mile, and claim VAT on the fuel element of the mileage allowance.

Option 4 – don’t claim any VAT!

If the business mileage is low, and the above options are too much hassle, then the Client can simply not claim the VAT. HMRC must be notified PRIOR to using this option.

Also check that the Client is using the current figures – we have seen VAT rate changes in the last few years. HMRC update the Fuel Scale Charges each year; and the fuel element for the Approved Mileage Allowance Payments changes frequently.

Do take care, and avoid those banana skins!

[Small print – I cannot deal with everything in a single article. You can get further information on the HMRC website. Or, better still, find a professional on AW]

AccountingWEB Budget 2012 resources - sponsored by Sage:

About Les Howard


Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire

I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.


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19th Mar 2012 11:43


Great reminder, many thanks.

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20th Mar 2012 12:50


One other item - If you operate the Flat Rate Scheme, then that's a variant of options 3/4, in that you don't claim the VAT (and so don't need all that mucking about with petrol-station VAT receipts for mileage expense claims), while still getting a degree of credit from HMRC against your expenditure.


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