Can I Reclaim VAT on Fuel and Mileage

If your business uses vehicles for work, you may be entitled to reclaim VAT on fuel and mileage costs. However, HMRC has strict rules about when and how VAT can be reclaimed, especially if vehicles are used for both business and personal journeys. Choosing the right method to recover VAT on fuel and mileage can make a noticeable difference to your cash flow and compliance. This article explains when you can claim VAT back, the options available, and how to ensure your claims meet HMRC’s requirements.

Reclaiming VAT on Fuel

Businesses can reclaim VAT on fuel used for business purposes, but the treatment depends on whether the vehicle is used solely for business or for both business and private journeys.

If the vehicle is used only for business, you can reclaim 100 percent of the VAT paid on fuel. You must be able to prove that the vehicle is not used for personal travel, which is rare unless it is a dedicated business vehicle, such as a delivery van or pool car.

If the vehicle is used for both business and private use, you have two options:

  1. Reclaim all VAT and pay the fuel scale charge.

  2. Reclaim only the business-use portion of VAT.

Each method has its own rules and advantages.

Method 1: Reclaim All VAT and Pay the Fuel Scale Charge

The fuel scale charge is a fixed amount set by HMRC to account for private use of fuel. It prevents businesses from reclaiming VAT on fuel used for personal travel.

Under this method, you reclaim all VAT on fuel purchases throughout the period and then pay back a set amount to HMRC based on the CO₂ emissions of the vehicle. The scale charge is updated annually and applies per vehicle per accounting period.

This option works best when there is significant business mileage, as the VAT reclaimed usually exceeds the scale charge.

Example:
A company car is used for both business and private travel. The business reclaims all VAT on fuel receipts but must apply the fuel scale charge for that car. The result is a partial offset you still benefit from recovering some VAT but remain compliant with HMRC’s private use rules.

Method 2: Reclaim VAT on Business Fuel Only

If keeping detailed mileage records is practical, you can reclaim VAT only on the proportion of fuel used for business journeys. This avoids paying the fuel scale charge.

To use this method, you must:

  • Keep accurate mileage logs showing the purpose of each trip.

  • Record the total fuel purchased and calculate the business-use percentage.

  • Apply that percentage to your total fuel VAT to determine how much can be reclaimed.

Example:
You purchase £500 of fuel (including £83.33 VAT). If 60 percent of the mileage is business-related, you can reclaim 60 percent of the VAT, which is £50.

This approach works well if private use is substantial, as the fuel scale charge may otherwise outweigh the benefit of reclaiming all VAT.

When You Cannot Reclaim VAT on Fuel

You cannot reclaim VAT on fuel used solely for personal journeys or commuting. HMRC defines personal use as any trip not directly related to business, including travel from home to a regular workplace.

Additionally, if you buy fuel but cannot provide VAT invoices as evidence, you cannot reclaim the VAT. Card statements or generic receipts are not sufficient VAT claims must be backed by valid VAT invoices.

Reclaiming VAT on Mileage Claims

If employees use their own vehicles for business travel and claim mileage expenses, the company may be able to reclaim VAT on the fuel portion of the mileage allowance.

The key conditions are:

  • The employee must submit a mileage claim showing business journeys.

  • The business must hold valid VAT fuel receipts covering the period of the mileage claim.

  • Only the fuel element of the mileage rate includes VAT.

HMRC provides advisory fuel rates that show how much of the mileage rate relates to fuel costs. These rates are updated quarterly.

Example of VAT on Mileage

Suppose an employee uses their own car and is paid 45p per mile under the company’s mileage policy. According to HMRC’s advisory rates, the fuel element might be 14p per mile.

VAT can only be reclaimed on that 14p portion, not the full 45p.

If the VAT rate is 20 percent, the reclaimable VAT is calculated as:

14p × (1/6) = 2.33p per mile.

So, for 1,000 miles of business travel, you could reclaim £23.30 in VAT provided valid fuel receipts are held.

VAT on Company Cars vs Private Vehicles

The VAT treatment depends on who owns the vehicle:

  • Company-owned vehicles: The business can reclaim VAT using either the full claim with a fuel scale charge or the business-use-only method.

  • Privately owned vehicles: VAT can only be reclaimed on the fuel portion of mileage payments to employees, not on the full mileage rate.

If a company provides free fuel for private use in a company car, this is treated as a benefit in kind for the employee and may have additional tax consequences.

Keeping Records for VAT Claims

HMRC requires businesses to maintain detailed records to support any VAT reclaim on fuel or mileage. You should keep:

  • Valid VAT receipts for all fuel purchases.

  • Mileage logs showing dates, destinations, and purpose of each business trip.

  • Calculations showing how business-use percentages were worked out.

  • Copies of VAT returns where the reclaim was made.

Records must be kept for at least six years, and poor record keeping is one of the most common reasons VAT claims are challenged during audits.

Common Mistakes to Avoid

Many VAT reclaims are reduced or disallowed due to errors such as:

  • Claiming VAT on non-business travel.

  • Forgetting to keep VAT fuel receipts.

  • Applying the wrong fuel scale charge.

  • Using incorrect mileage rates.

  • Claiming VAT for fuel paid for by employees without proper reimbursement.

Ensuring accurate calculations and maintaining good records protects your business from HMRC penalties and interest charges.

How an Accountant Can Help

An accountant experienced in VAT can ensure you reclaim the correct amount and avoid costly mistakes. They can:

  • Advise which method of reclaiming VAT on fuel is most tax-efficient.

  • Help calculate business-use percentages.

  • Check advisory fuel rates and scale charge tables.

  • Ensure compliance with VAT documentation requirements.

  • Manage VAT audits or correspondence with HMRC if your claims are reviewed.

Professional advice can often save more than it costs, especially if you operate multiple vehicles or reimburse staff for business travel regularly.

Summary

Yes, you can reclaim VAT on fuel and mileage, but only for business use and only if you follow HMRC’s rules. Businesses can either reclaim all VAT and pay a fuel scale charge or reclaim VAT only on business mileage. When reimbursing employees, VAT can be reclaimed on the fuel portion of mileage payments if valid receipts are kept.

Accurate records, correct calculations, and the right evidence are essential to stay compliant. Working with an accountant ensures your VAT claims are maximised while avoiding the risk of errors or penalties.