Reclaiming VAT on fuel
When it comes to reclaiming VAT on your fuel and petrol, there are various ways to do it. It’s important to handle the process with care; otherwise, you could face some severe penalties from HMRC for making false or inaccurate claims when trying to reclaim your motoring expenses.
Can you reclaim VAT on fuel?
Yes, you can reclaim VAT on fuel when it comes to road fuel used for business miles or on a company car. This is the simplest option when it comes to claiming back some of that money you’ve lost.
Gov.uk states that the car cannot be for private use and that you “must be able to show that it is not, for example, it’s specified in your employee’s contract.”
The options available to you can depend on the type of car, whether it’s brand new, a leased car, or a commercial vehicle. You can also claim for additional costs such as repairs and any accessories you’ve fitted for business use.
In the USA, the IRS allows both employees and the self-employed (freelancers) to use a standard mileage rate which for business driving is $57.5 per mile. It’s important that when reclaiming, you only factor in the car’s mileage when using it for business.
The percentage of the car’s use for business (based on miles done) will determine how much is deductible from your taxes.
Claiming VAT on fuel costs
To claim 100% of the VAT on fuel, you need to prove that all the fuel used is for business trips only—and not for personal use. This can be difficult to do unless you have a taxi business or work in lorry haulage.
Another way of claiming VAT on fuel is by keeping a detailed mileage log of all your business mileage and the journeys you make as part of your business. By tracking what mileage expenses you use for business, you can calculate how much of the VAT you can claim back.
These detailed mileage records can be useful when you're a sole trader, too.
The second option can take a bit of effort on your part, especially if you’re a small business, but it can certainly make a difference to your bottom-line financials.
All you’ll need is a 1099 tax form in the USA to ensure you claim a mileage deduction every year. You’ll also want to keep a record of the fuel used for business over the year.
How much VAT can you claim back on fuel?
VAT on fuel expenses varies depending on what type of vehicle you have and the mileage allowance. With that being said, here’s a break down:
You may be able to reclaim all the VAT back on new cars, so long as you can prove it’s used for business only. This includes those who operate as a taxi but can also include driving instructors and personal chauffeurs.
For car leases, the VAT on fuel will be something you can claim 50% of. There is the chance that you could claim it all, but you’d need to prove that it’s only being used for business purposes.
If you hire a car for another reason, then you can reclaim all of that VAT as long as you’ve not hired the car for more than ten days and it’s only for business purposes.
With commercial vehicles, you can reclaim VAT on a van, lorry, or tractor. You can also reclaim VAT on motorcycles, motorhomes, caravans, vans with rear seats, and car-derived vans.
The process may seem difficult, and it’s why some businesses and individuals choose to skip reclaiming VAT on fuel expenses. However, if you’re willing to put in the time on your bookkeeping, then it can certainly pay you back.
What is the VAT on fuel?
When it comes to fuel duty, the flat rate for VAT is 20%. You’ll likely see a reduced rate of 5% on domestic heating fuel, so this is worth noting for your mileage rate.
The rate you pay with VAT on fuel depends on the type of fuel it is, due to co2 emissions. These advisory fuel rates are worth knowing.
For the USA, it’s worth checking what sales tax is added on, as this can vary from state to state.
To claim or not to claim VAT on fuel expenses?
You don’t need to reclaim VAT on your fuel as a business owner. However, if you’re going to do so, make it less of a hassle for you when it comes to reclaiming by retaining and filing any fuel receipts.
For HMRC purposes, you’ll also need to keep four years worth of receipts to prove this expenditure. This may be needed if HMRC ever wanted you to provide evidence on your VAT return.
If you do have these VAT receipts dating back four years, then you’ll be pleased to know that you can reclaim on these mileage expenses. So, work out your fuel scale charge to know how much you can claim back.
Try out our VAT refund calculator to find out how much money you can save on business travel.
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Enter the gross amount (including taxes) spent for each category to see how much you could reclaim.
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*The estimates and rates shown on this page are indicative only, and based on the rates published by the EU on the date mentioned at the top of the page. Countries may change rates at any time or offer discounted rates for a short period of time. Recovering VAT is subject to local regulations.
Hopefully, you found this quick guide useful, if you’re ever in need of further advice or are looking for software to help with reclaiming VAT on fuel, you know where to find us.