VAT on Fuel for UK Businesses
Petrol and diesel purchased for business use in the UK is subject to the standard 20% VAT rate. VAT-registered businesses can reclaim the VAT element on fuel costs — but the rules depend on how the fuel is used and how expenses are recorded. Getting this right is important for both your VAT return accuracy and HMRC compliance.
The Three Methods for Reclaiming Fuel VAT
HMRC allows three different methods for reclaiming VAT on fuel, depending on your business situation:
Method 1 — Reclaim All Fuel VAT (Business-Only Vehicles)
If a vehicle is used exclusively for business and is never used privately, you can reclaim all the VAT on fuel. This applies to commercial vehicles like vans, lorries, and taxis — and cars if you can demonstrate there is absolutely no private use (which is very difficult to prove for cars).
Method 2 — Reclaim VAT on Business Mileage Only
If a vehicle has both business and private use, you can reclaim VAT only on the fuel used for business journeys. You must keep a detailed mileage log showing business and private miles separately. Calculate the business proportion and apply it to the total fuel VAT.
Business Fuel VAT
VAT = Total fuel VAT × (Business miles ÷ Total miles)
e.g. £200 VAT × (8,000 ÷ 10,000) = £160
Extract VAT from fuel receipt
VAT = Fuel cost ÷ 6
e.g. £120 fuel ÷ 6 = £20 VAT
Method 3 — HMRC Fuel Scale Charge
If you reclaim all fuel VAT (including private use fuel) for convenience, HMRC requires you to add back a fuel scale charge — a fixed quarterly amount based on your vehicle's CO2 emissions. This simplifies record-keeping but can result in paying more VAT overall depending on your vehicle and mileage.
⛽ Worked Example — UK Sales Rep, Mixed Use Vehicle
HMRC Advisory Mileage Rates for Fuel VAT
HMRC publishes Advisory Fuel Rates (AFRs) for company car users and Advisory Electric Rate (AER) for electric vehicles. These are used when employees are reimbursed for business mileage at the approved rate, or when calculating the VAT on fuel reimbursements.
Current HMRC AFRs (from 1 March 2025) for petrol-engined cars:
- Up to 1400cc: 13p per mile
- 1401cc to 2000cc: 15p per mile
- Over 2000cc: 23p per mile
For hybrid cars, use the petrol or diesel rate. For electric company cars, the Advisory Electric Rate is 7p per mile. Check current rates at HMRC Advisory Fuel Rates (GOV.UK).
VAT on Employee Mileage Claims
When employees use their own car for business and are reimbursed at HMRC's approved mileage rates (45p per mile for first 10,000 miles, 25p thereafter), VAT-registered employers can reclaim the VAT element of the fuel portion of that mileage payment. The formula uses HMRC Advisory Fuel Rates to calculate the fuel cost component.
Important: You cannot reclaim VAT on fuel for private journeys. HMRC may check your fuel VAT claims during a VAT inspection, so accurate mileage records are essential. Keep fuel receipts for at least 6 years. Source: HMRC VAT on motoring expenses (GOV.UK)