Self-employed businesses that are registered for VAT charge their customers VAT on sales and reclaim the VAT they are charged on their own expenses. For most expenses, the amount of VAT that can be claimed is clear. There are special rules in place for reclaiming VAT on fuel for vehicles, as most small businesses will have a single vehicle for both business and personal use. 

If a vehicle is genuinely only used for business, then VAT can be claimed in the same way as for any other business expense. Should HMRC check a return that includes such a claim, they are likely to seek evidence that a vehicle does only have business use. Mileage records showing that the distance travelled was all for business journeys and having a second vehicle available for private use will help address such queries.

If there is personal use, then there are two ways of dealing with the VAT for that personal use. 

Mileage records
If you keep detailed mileage records, you can determine how much of the total mileage in a vehicle is for business purposes. VAT can then be claimed based on the percentage of total mileage that relates to business activities.

Fuel scale charge
A business can claim VAT on all motor expenses and then provide a fuel scale charge for the private use. HMRC provide a table of fuel scale charges based on the CO2 emissions of the vehicle. The table showing the current figures, which change on 1st May each year, can be found here. (tinyurl.com/y64wmcrz). These fixed amounts represent a fixed value for a VAT-inclusive ‘sale’ of the use of the vehicle for private purposes. Because these are fixed figures with no reference to the distance travelled, the amount of VAT paid back in this way can exceed the amount claimed. Before adopting this method you should check the figures to make sure that you are not actually ending up worse off as a result. 

If neither of these methods appeals, then the only other choice is to not claim VAT on fuel costs. 

Please note that the above applies only to self-employed businesses.
The rules for vehicles in businesses run through companies are more complex and beyond the scope of this article. 


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