You have three basic options for reclaiming VAT on the fuel your business buys for a car…

Option 1 – Motor scale charges

You may claim input tax in full on road fuel purchased by the business that is to be used for both business and private journeys, provided you apply a motor fuel scale charge.

These are fixed charges and the current charges may be found here.  The charges vary with the CO2 rating of the vehicle, are per car not per business, and are accounted for by including them in Box 1 of your VAT return.

Charges are fixed irrespective of the amount of private mileage, and you pay the same if you do 20 private miles in a period, or 200.  The journey from your home to your normal place of work is considered a private journey by HMRC.

This is a simple option, but be warned, it can mean that you are in a position where you are paying more in scale charges than you are claiming in input tax on road fuel each quarter.  If you want a simple method, and you do not incur much VAT on road fuel, it might be best to take a look at Option 3.

Option 2 – Keep mileage logs 

You do not need to account for the motor fuel scale charge if you only claim input tax on fuel for business journeys.  It is not sufficient to just state this is what you do, or that you buy some fuel outside of the business.  You will need to keep mileage records of fuel bought for the business and private journeys made.

For example, say your business bought £600 (inc VAT) worth of fuel in a period for your car, and your mileage records show that you did 3,500 miles for business, and 500 miles privately.

The business use of fuel would have cost £600 x 3,500 ÷ 4,000 = £525.

The VAT included in £525 worth of fuel is £525 ÷ 6 = £87.50, and so you would be able to claim £87.50 input tax on fuel.

As this can be evidenced to all be for business use then you are not liable to pay a motor scale charge.

Option 3 – Don’t claim VAT on road fuel

If you do not claim any VAT on road fuel, that’s it, you do not need to account for motor fuel scale charges for any cars, or make any other adjustments.  But, and it’s a big but, you must not claim any VAT on any road fuel for any of the business’s vehicles, including commercial ones.

Which option you choose depends on how much fuel your business buys for your car(s), the amount of private use, and whether you are happy to maintain and keep detailed mileage logs.

If you would like any help and advice on which option would be best for you, please contact our VAT Team.

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