VAT on Fuel Expenses: What Can UK Businesses Reclaim?

What counts as VAT on fuel expenses?

For most businesses, fuel expenses include petrol, diesel and LPG bought for vehicles used in the business.

Electric vehicle charging has separate VAT rules, which we cover later.

The important point is that the VAT claim relates to business use. Paying for petrol from a business bank account does not automatically make all of the VAT recoverable.

You should also keep appropriate evidence for your claim, such as fuel VAT invoices or receipts and, where necessary, mileage records.

If vehicle costs form a significant part of your expenses, keeping these records alongside your regular bookkeeping can make VAT returns much easier. Real Key Accountancy’s bookkeeping services for small businesses include support with organising business expenses and supporting records.

Can you reclaim all the VAT on business fuel?

You can normally reclaim all the VAT where the fuel is used exclusively for business purposes, subject to the usual VAT rules.

HMRC gives pool cars used entirely for business purposes as one example where all the VAT on road fuel may be treated as input tax.

The situation becomes more complicated where the business pays for fuel that also covers private journeys.

You then need to decide how the private element will be dealt with.

Option 1: reclaim all the VAT and use the fuel scale charge

A business that pays for both business and private fuel can reclaim the VAT on the fuel and then account for VAT using HMRC’s road fuel scale charge.

The scale charge is designed to account for private fuel without requiring you to calculate the exact private fuel cost for every journey.

It is based mainly on:

• the vehicle’s CO2 emissions;
• the length of your VAT accounting period; and
• the HMRC scale-charge table applying to that period.

HMRC’s current scale-charge table applies from 1 May 2026 to 30 April 2027. New scales must be used from the start of the next prescribed VAT accounting period beginning on or after 1 May 2026. Check the 2026/27 VAT road fuel scale charges

Example: VAT fuel scale charge

Example: A VAT-registered business pays for all fuel for a car with CO2 emissions of 150g/km. The car is used for both business and private journeys.

Under HMRC’s scale-charge table for 1 May 2026 to 30 April 2027, the VAT-inclusive charge for a three-month VAT period is £328.

The VAT element is £54.67.

The business can therefore reclaim qualifying VAT on its fuel purchases but must account for £54.67 of output VAT for that quarterly period.

This approach may be convenient where private mileage is significant or detailed mileage apportionment would create excessive administration.

However, the calculation should be reviewed rather than applied automatically. A scale charge can sometimes cost more than the VAT that would otherwise be recoverable.

Option 2: claim VAT only on business fuel

You do not have to use a fuel scale charge.

Instead, you can keep detailed mileage records and calculate the proportion of fuel that relates to business travel.

HMRC’s method involves identifying:

1. total mileage;
2. qualifying business mileage;
3. total fuel expenditure; and
4. the business proportion of that fuel expenditure.

You then calculate the VAT contained within the business fuel amount.

For standard-rated petrol or diesel where VAT is charged at 20%, the VAT contained in a VAT-inclusive amount is normally calculated using the VAT fraction of 1/6.

Example: reclaiming VAT using business mileage

Example: During a VAT period, a driver travels:

• 4,000 miles in total;
• 3,000 qualifying business miles; and
• 1,000 private miles.

The business therefore accounts for 75% of the mileage.

If total VAT-inclusive fuel expenditure was £600, the business-use amount would be:

£600 × 75% = £450

The VAT contained within £450 at the standard 20% VAT rate would be:

£450 ÷ 6 = £75

Subject to the normal input-tax rules and suitable evidence, the potential VAT claim would therefore be £75.

Reliable mileage records are essential for this method. A useful log should normally record the date, destination, business reason and mileage for each journey.

For sole traders, our guide to allowable business expenses and record keeping explains why contemporaneous mileage records are stronger than estimates reconstructed at the end of the year.

Can you simply choose not to claim VAT on fuel?

Yes.

Where business mileage is low, the VAT recovered may be less than the amount due under a fuel scale charge. In that situation, not reclaiming VAT on road fuel may be simpler.

There is an important restriction.

HMRC states that if a business chooses not to reclaim VAT on fuel for one vehicle under this treatment, it cannot continue reclaiming VAT on fuel for other vehicles used by the business.

Therefore, businesses operating several cars or vans should consider the overall position before choosing this option.

How does VAT work when employees claim mileage?

Mileage reimbursement often causes confusion because the mileage allowance itself is not the amount on which the business simply reclaims VAT.

For the 2026/27 tax year, the approved mileage rate for an employee using their own car or van is:

• 55p per mile for the first 10,000 qualifying business miles;
• 25p per mile after 10,000 miles.

The 55p rate applies retrospectively from 6 April 2026. The same first-10,000-mile rate also applies to simplified vehicle expenses for qualifying self-employed businesses in 2026/27. HMRC’s 2026/27 mileage rates

However, you cannot reclaim VAT on the full 55p mileage payment.

Only the fuel element of the mileage allowance is relevant for the VAT calculation.

HMRC permits employers to use its advisory fuel rates to establish an acceptable fuel cost per mile. The appropriate rate depends on factors such as fuel type and engine size.

Example: VAT on an employee mileage claim

Example: An employee uses their own petrol car for 1,000 qualifying business miles.

Assume the appropriate fuel element is 17p per mile.

The VAT-inclusive fuel element would be:

1,000 × 17p = £170

At a 20% VAT rate, the VAT fraction is 1/6:

£170 ÷ 6 = £28.33

The potential input VAT claim would therefore be £28.33, not VAT calculated on the employee’s entire mileage reimbursement.

The employer must also retain appropriate fuel invoices covering the claim. HMRC requires mileage records showing details including mileage travelled, vehicle engine capacity, mileage rate and the amount of input VAT claimed.

HMRC changes advisory fuel rates periodically. Rates taking effect from 1 September 2026 have already been published, so businesses should always use the rate relevant to the journey period rather than relying on an old mileage spreadsheet.

Mileage rates and VAT are not the same thing

This distinction is especially important for sole traders.

The 2026/27 simplified mileage rate of 55p per mile for the first 10,000 miles is an Income Tax expense calculation. It covers vehicle running costs such as fuel, insurance, servicing and repairs for the purposes of calculating taxable business profits.

It is not a statement that 55p of fuel has been purchased, nor does it mean that VAT can be extracted from the full 55p.

VAT must be considered separately under the VAT rules.

If you use mileage extensively, Real Key Accountancy’s free business tools and mileage calculator can help with the basic mileage calculation. Your VAT records should still contain the evidence needed to support any VAT recovery.

What records should you keep for VAT on fuel?

Good records are particularly important when business and private mileage are mixed.

Depending on the method you use, keep:

• fuel VAT invoices and receipts;
• the date of each business journey;
• the start and destination;
• the reason for the journey;
• business miles travelled;
• total mileage where you are apportioning actual fuel costs;
• the vehicle and engine details where relevant;
• mileage allowance calculations for employees;
• the advisory fuel rate used;
• fuel scale-charge calculations, where applicable.

Avoid estimating business mileage at the end of the quarter if accurate records could have been kept during the period.

This is particularly relevant for taxi, courier and delivery businesses with frequent journeys and significant fuel spending. Real Key’s guide to bookkeeping for delivery drivers includes practical guidance on keeping mileage and fuel records organised.

What about VAT on electric vehicle charging?

Electric vehicle charging is subject to different rules.

HMRC states that a business can recover VAT relating to business use where an electric vehicle is charged at work or at a public charging location, subject to the normal VAT rules.

A sole proprietor or partner may also recover the business proportion of VAT on electricity used to charge an electric vehicle at home. Mileage records should be used to separate business and private use.

The position is different for employees charging at home.

HMRC’s published motoring guidance states that where an employee charges a company or private electric vehicle using their domestic electricity supply, the electricity is supplied to the employee rather than the employer. Under that guidance, the employer cannot recover the VAT on the employee’s home charging cost.

For employees charging at a public charging point, the employer may recover qualifying VAT where the conditions are met.

Because electric vehicle reimbursement and VAT rules can develop independently, check the current HMRC guidance before making recurring VAT claims.

What if you use the VAT Flat Rate Scheme?

Businesses using the VAT Flat Rate Scheme should not apply the normal fuel-recovery rules without checking their position.

Under the Flat Rate Scheme, businesses generally do not reclaim VAT separately on ordinary purchases because input VAT is built into the scheme’s flat-rate calculation. Fuel is specifically an item on which input VAT is not normally recovered under the scheme.

Consequently, businesses using the Flat Rate Scheme do not normally apply road fuel scale charges because they are not reclaiming input VAT on their road fuel.

Common VAT mistakes with fuel and mileage

Several mistakes appear repeatedly in vehicle records.

Claiming VAT on the full mileage allowance. Only the appropriate fuel element may support the VAT calculation for mileage reimbursements.

Keeping mileage records but no fuel invoices. Employee mileage VAT claims still need appropriate fuel invoices or receipts to support the fuel expenditure.

Claiming all fuel VAT while ignoring private use. Mixed business and private fuel needs an appropriate treatment, such as a scale charge or business-use apportionment.

Using outdated advisory fuel rates. HMRC updates them regularly.

Confusing simplified mileage with VAT recovery. Income Tax mileage deductions and VAT calculations are separate issues.

Applying a fuel scale charge automatically. For low business mileage, it may be more expensive than reclaiming only the business VAT or making no fuel claim.

Which VAT fuel method should your business use?

There is no single method that is best for every business.

A business with an exclusively commercial vehicle may have a straightforward claim. Someone using the same car heavily for both personal and business travel may benefit from detailed mileage records. Another business may prefer the administrative simplicity of the fuel scale charge.

The key is to choose a method that fits the actual vehicle use, apply it consistently and retain enough evidence to support the VAT return.

If your fuel receipts, mileage claims and private-use calculations have become difficult to reconcile, Real Key Accountancy provides VAT, bookkeeping and accounting support for small businesses. We can help organise the underlying records and establish what information is needed for your VAT returns.