Reclaim VAT on Fuel Expenses : what you need to know

Many companies neglect to reclaim their employees’ VAT on fuel expenses. Reclaiming VAT is challenging for businesses since it tends to be time-consuming. However, no one wants to leave money on the table. Claiming this expense can lead to significant refunds for companies of all sizes.

The key to recovering your employees’ VAT on petrol lies in becoming familiar with how VAT works, the VAT rates and the eligibility criteria for placing a claim. These factors will help you recover VAT expenses more efficiently.

Reclaiming VAT on Fuel

There are several ways to reclaim VAT on fuel and petrol. It’s essential to take great care when preparing the paperwork. HMRC (Her Majesty’s Revenue and Customs) imposes severe penalties for submitting false or inaccurate claims for petrol expenses.

Conditions for Reclaiming VAT on Petrol

HMRC allows you to reclaim VAT on petrol used for business purposes only. Suppose a staff member is claiming expenses on a company car. In this case, they must be able to show the vehicle was not being driven for personal use.

To reclaim all of the VAT on fuel, you have to prove the vehicle is only used for business purposes. This can be difficult unless your business is a taxi service or you work in a lorry haulage company.
Another way to reclaim VAT on petrol is to keep careful track of your business mileage in a log book. Tracking business mileage expenses means calculating how much VAT you can reclaim from HMRC.

Amount of VAT Reclaimable on Fuel

The VAT for fuel is a flat rate of 20%. The amount of VAT deductible on fuel depends on the type of vehicle and the mileage allowance set by HMRC.

New Cars

If you can prove that all the driving is done for business purposes only, you may be able to reclaim all the VAT on fuel for new cars. This policy applies if you are operating a taxi business and for those working as driving instructors or personal chauffeurs.

Leased Vehicles

You can reclaim 50% of the VAT on fuel if a car has been leased. If you prove the vehicle is only used for business purposes, you may be able to reclaim all the VAT on fuel.

Hire Cars

If you hire a car for occasional business use, you can make a claim for the total amount of VAT so long as the vehicle has been hired for less than 10 days and was only driven for business reasons.

Commercial Vehicles

You can claim the VAT on a lorry, van, or tractor. You can also reclaim the VAT on the following commercial vehicles:

Car-derived vans
Caravans
Motorcycles
Motorhomes
Vans with rear seats

The process can seem challenging. For this reason, some individuals and business owners skip putting in claims for fuel expenses. However, it can be worthwhile if you are prepared to take the time with record-keeping.

Should you Reclaim VAT on your Fuel Expenses?

Business owners are not required to reclaim VAT on their petrol expenses. If a business owner decides to reclaim VAT, the same rules must apply to all vehicles the business owns. The owner can’t decide to reclaim VAT on executives’ cars and choose not to reclaim VAT on commercial vehicles.

Employees must keep all fuel receipts and submit them to the company. HMRC requires you to keep your receipts for four years after making a claim to prove your expenses. If HMRC asks you to provide evidence on your VAT return, you’ll need to produce your receipts.

The good news for business owners is that they can reclaim VAT on fuel retroactively for up to four years as long as they have the receipts to support their claim.

VAT and Travel and Entertainment Expenses

Employees can claim travel expenses when they have to work in another location. These expenses include accommodation, which consists of the cost of hotels, serviced apartments, or renting short-term accommodation. The company may reimburse the employee at a set nightly rate if they choose to stay with a friend or family member. Staff members can choose an appropriate place to stay depending on their budget and the time they need to be away from the home office.

Travel expenses can also include a daily subsistence allowance for food and drink while away from home, WiFi charges, the cost of doing laundry, and parking fees.

Some business entertainment expenses are eligible for VAT recovery. These expenses are typically food and drink, tickets to events, and the use of yachts or hotels for entertaining. Staff may be included in business entertainment.

Business gifts are under the same category as entertaining costs. HMRC allows gifts with a value up to £50 to anyone in a tax year. To qualify as a gift, the item must carry an advert for your business. Examples of acceptable business gifts include:

Bottle opener
Calendar
Coffee mug
Diary
Fruit basket
Gift basket
Gift set

Mooncard Makes it Easy to Track VAT on Fuel Expenses

When your employees drive for work, they need to keep receipts for any money they spend for business purposes. Mooncard’s fuel card makes it easy for them to keep business expenses separate from their personal funds. The card is accepted at all gas stations and makes VAT recovery much easier.

Every time the Mooncard for fuel is used, it records an image of the receipt. Your staff never has to worry about picking up a paper receipt for petrol or submitting receipts for month-end. The software records the images automatically and uploads them to your computer for processing. The entire process is streamlined, making settling employee expense claims much easier and more efficient.

Your company will also be able to reclaim the VAT on fuel more efficiently. There is less likelihood of making an error or an omission on your HMRC forms.

To discover more about Mooncard’s fuel card and how it can help your business reclaim the VAT. Find out more to arrange an online demo with one of our specialists today.