Mike Purcell Accountant and Software Consultant

Let's face it - VAT can be a tricky area. How do you get it right when it comes to fuel?

We get quite a lot of questions regarding how to deal with VAT on fuel expenses, so we thought we would put together a simple summary!  The following information is required to ensure you are accounting for VAT correctly.  You may want to forward this article on to your finance team.

Fuel Scale Charges

If your business provides private fuel for any director or employee and is claiming all the VAT on the fuel purchases you MUST use fuel scale charges (FSC) to pay this back. This prevents any need to keep detailed mileage records.

How it works:
  1. Find the CO2 emissions figure of the relevant car
  2. Use the HMRC FSC Quarterly charge table to establish the Net, VAT and Gross amounts to use. View FSC Charges
  3. Enter a journal in your accounting system dated the last day of the VAT quarter to account for the charge. You will need to ensure this is entered correctly to account for the VAT and included on your VAT return.   For Sage Line 50 users you can use the fuel scale charge wizard within the VAT return screen.

Advisory Fuel Rates

These rates only apply when you either:

  • reimburse employees for business travel in their company cars
  • require employees to repay the cost of fuel used for private travel in their company cars

These rates are only for directors or employees using a company car and you must not use these rates in any other circumstances. 

The advisory electricity rate for fully electric cars is 4 pence per mile. Hybrid cars are treated as either petrol or diesel cars for advisory fuel rates. The advisory fuel rates for petrol, LPG and diesel cars are shown in these tables.

From 1 March 2021

You can use the previous rates for up to 1 month from the date the new rates apply.

Engine size Petrol - rate per mile LPG - rate per mile
1400cc or less 10 pence 7 pence
1401cc to 2000cc 12 pence 8 pence
Over 2000cc 18 pence 12 pence
Engine size Diesel - rate per mile
1600cc or less 9 pence
1601cc to 2000 11 pence
Over 2000cc 12 pence

Hybrid cars are treated as either petrol or diesel cars for this purpose.

For employees private vehicles please use the 45p per mile rate (for the first 10,000 miles, and 25p per mile thereafter) for reimbursing business mileage.

Accounting for VAT using Advisory Fuel Rates

VAT can be claimed on any reimbursement of business mileage paid to a director or employee, where they are paying for the fuel themselves.  However, you can only claim VAT on the fuel element of the amount reimbursed. The following example is based on the 45p per mile for an employee using their own vehicle. (Note that this amount drops to 25p per mile after the first 10,000 miles within the financial year):

Based on a Diesel car with an engine size of 1700cc the fuel element would be 11p per mile (taken from the current advisory fuel rate at March 2021). If you were reimbursing for 100 miles then you would reimburse £45 of which £11 (100 miles x 11p) would be used for the fuel element on which you can claim the VAT. This would be £11 / 6 = £1.83 claimable vat.

VAT should also be charged on the fuel element only to a director or employee when they repay any private mileage. The advisory fuel rate should be used for this figure.

Please contact us if you require any assistance with accounting for any of the content featured in this article.

Please note – This content is provided for information only.    No action should be taken without consulting detailed legislation or seeking independent professional advice.   Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this content can be accepted.