This is a guest post by Alastair Ellerington of Howlader & Co on claiming fuel expenses.
How interested are you in a way to claim back just a few pence in expenses? Your VAT on fuel expenses can be claimed back, and though it may be worth only a few pence per mile, this can add up significantly for small businesses.
If you use a company vehicle – or even your own private vehicle – for a lot of travelling for your work, this quick bare-bones guide will help you claim that VAT back.
There are different ways of reclaiming VAT on fuel, so you need to know the right way for you. VAT can be reclaimed on fuel on vehicles used for business use, but only in proportion to the amount they’re used for business. This must be supported by one of a few approved calculations and VAT invoices.
So how can you be sure which is the right way for you? The first key question is this: do you use the vehicle solely for business use, or for personal use as well?
Great – according to HMRC, you can claim back all the VAT you’re charged on the fuel you use for it. The catch? You must be able to prove that the vehicle is used solely for business – for example, by setting this out in employees’ contracts.
HMRC are pretty strict in insisting it must be purely business use. Commuting between home and work counts as personal use, for example. So what can you do if you’re not sure whether your vehicle use falls into this category?
If you use the vehicle for personal use alongside commercial use – from one trip you made for your own use to extensive daily personal use – the rules get trickier.
You must follow these rules, even if you choose not to claim the VAT on the fuel you use for personal use. To reclaim the VAT on fuel if you fall into this category, you can do one of two things.
1. Reclaim only the fuel you used for business use by tracking the mileage
You can just claim VAT on fuel used for commercial usage of the vehicle, but you must track the mileage for those trips, and details of what that mileage was for.
HMRC has a procedure for claiming all mileage expenses by a personal vehicle used for business trips called Mileage Allowance Payments. Under this, an employer can claim a certain amount of this travel expense that the employee reclaims (counted as a ‘benefit in kind’ paid out to them) as tax-free. This amounts to 45p/mile for cars (or 25p/mile after 10,000 miles), 24p/mile for motorbikes, or 5p/mile as a passenger.
To reclaim the VAT for a commercial van, use the P11d Working Sheet 2 to calculate how much of that tax-free amount you can claim as fuel (you’ll need to know your vehicle’s CO2 emissions or engine CC), then divide that figure by six to get the amount per mile you can reclaim on your VAT return as tax-free VAT reclamation.
2. Reclaim all the VAT and pay the right fuel scale charge
To do this, claim back all the VAT, just as if you used the vehicle solely for commercial reasons. Then include in your return a payment to HMRC of the relevant ‘fuel scale charge’. You can calculate this online. To do that, you’ll need the tax year and the length of time (monthly, quarterly, or for the year) you are calculating it for, and your vehicle’s CO2 emissions. This method is only worthwhile if the amount of VAT you claim back is more than the scale charge (£38-£135 per month).
You are only required to pay VAT on van fuel if it’s used ‘significantly’ for private use. HMRC is relatively relaxed on this, and does only count significant private use. One-off stops at a shop for non-business shopping are allowed, but doing so regularly would count as private use.
If you do use your van for personal use regularly, then paying an adjustment to the annual charge for fuel expenses that you pay as an employee benefit (for private van use) would be necessary (pay 20% of the annual charge as an extra charge for this VAT).
If you lease a car, you can generally claim 50% of the VAT back, unless you can prove it was entirely used for business purposes, for example, a taxi or hire of specialised commercial vehicles. In this case you can reclaim all of the VAT on fuel expenses.
These rules seem complicated and the cost of following this procedure may outweigh the benefits of the amount that can be reclaimed back for some, but beware this: if you choose not to reclaim the VAT on fuel for one vehicle, you lose the right to reclaim it for other vehicles that you use. It will be your judgement as to whether you want to reclaim your VAT on fuel. if you’re unsure on any of this process, seek professional advice on what further steps to take.
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