Questions surrounding VAT on mileage claims are common. It can be difficult to work out and hard to ensure that you have the correct evidence to give HMRC.
Let us clear up some of the terms surrounding VAT and mileage.
What is the Advisory Fuel Rate?
As VAT is charged on fuel, HMRC allow you to claim back the VAT from the fuel portion of the mileage. To calculate this, they use their advisory fuel rate, which estimates the amount of fuel used per mile based on engine size.
HMRC asses their Advisory Fuel Rate every quarter. As of March 2019 it stands that employees using a company car can claim between 7 to 21 pence based on car engine size and type of fuel used.
You are only able to claim back VAT on ‘work miles’, i.e not ‘private use’. Private use includes travelling between work and home. Work miles might include travelling to meetings, transporting items, using the vehicle as a taxi or being a driving instructor.
There are different ways to reclaim VAT on fuel, your accountant will be able to advise you on the best way for your business.
- Reclaim the VAT and pay the correct fuel scale charge for the vehicle (see above).
- Only reclaim VAT on fuel used for business and ensure that you keep a detailed record of all mileage.
- Choose not to claim VAT back if it is a very low amount and the claim does not out way the administration effort.
What is the VAT Fuel Scale Charge?
Some businesses choose to provide their staff with the added benefit of ‘free’ fuel or a fuel card. In this case staff are provided with fuel for business and personal use and, therefore, the business can claim back VAT on the fuel purchased.
However, as there is a personal use element to the fuel, HMRC requests an amount of the VAT being claimed. The amount of VAT requested by HMRC is called the Fuel Scale Charge. HMRC sets out flat rates for this charge, which is based on the CO2 emissions of the car being used – View the full VAT Fuel Scale Charge table here.
To work out your VAT Fuel Scale charge, HMRC has produced a calculator.
- Simply designate which tax year you are you are wanting to calculate the charge for.
- Then select the period of time (1, 3 or 12 months of that tax year).
- Enter the car’s CO2 emissions band (you can use this Vehicle Certification Agency index to find out the CO2 emissions band for your make and model).
- Your VAT Fuel Scale charge will be calculated and displayed with and without VAT.
What is the VAT Flat Rate Scheme and how does it affect the VAT Fuel Scale Charge?
The amount of VAT a business pays or claims back from HMRC is usually the difference between the VAT charged by the business to customers, and the VAT the business pays on their own purchases. If a business is using the VAT Flat Rate Scheme, then no VAT is reclaimed on fuel and no scale charge is required.
- You pay a fixed rate of VAT – therefore no estimations or advisory charges are necessary to calculate.
- You keep the difference between what you charge your customers and pay to HMRC.
- You can’t reclaim the VAT on your purchases.
Navigating the intricacies of claiming VAT on fuel can be very complicated. There are several hoops to jump through that become more complicated the more staff you have.
If you’re struggling to deduce the amount of VAT you could be claiming or the Fuel Scale Charges you may owe – get in touch today. We’re here to help.