Rajan Wilcox
In the UK, VAT (value-added tax) is a consumption tax applied to the sale of goods and services, and it is charged to consumers in the price of goods. The standard VAT rate is 20%, but this rate can vary depending on the type of goods or services and the applicable VAT rate at the time. For example, during the pandemic, the UK government introduced a temporary VAT rate reduction to 5% for businesses in the hospitality and tourism sectors. In the context of fuel, VAT is applied to fuel purchases, and businesses may be able to reclaim the VAT on fuel expenses under certain conditions. Fuel duty rates are also subject to change and have been adjusted in recent years. Understanding the VAT rates and their applicability is essential for businesses and consumers to navigate the tax landscape effectively.
| Characteristics | Values |
|---|---|
| VAT on fuel supplied for use in a foreign-going ship or aircraft | Zero-rated |
| VAT on fuel for non-qualifying use | Standard-rated |
| VAT on fuel for qualifying use | Reduced rate |
| VAT on fuel oil, gas oil or kerosene | Reduced rate |
| Fuel duty levied per litre of petrol and diesel | 52.95 pence |
| VAT charged on product price and duty | 20% |
| VAT charged on goods and services | Yes |
| VAT paid by businesses | No |
| VAT charged to consumers | Yes |
| VAT reported to HMRC | Yes |
| VAT charged on goods imported from non-EU countries | Local rate |
| VAT charged on goods exported to non-EU countries | Zero-rated |
| VAT charged on goods exported to EU countries | Depends on customer's VAT registration |
| VAT charged on goods imported from EU countries | UK VAT rate |
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What You'll Learn
VAT on fuel for business use can be reclaimed
In the UK, businesses can reclaim VAT on fuel used exclusively for business purposes. This means that the fuel cannot be used for private purposes. To reclaim VAT on fuel, businesses must provide strict proof that no private journeys have been undertaken using the fuel. This can be done by keeping a detailed mileage log of all business trips and the fuel used for these journeys. It is important to keep records of fuel used for business and private mileage separately.
There are several ways to reclaim VAT on fuel for business use. One way is to use the advisory fuel rates published by HMRC. Another way is to pay the advisory rate to reimburse employees for the amount of fuel they use for business, or the company could pay for the fuel and then charge the employee for the number of private miles they do, claiming VAT on the cost of the fuel minus the employee contribution.
If a vehicle is used for both business and private trips, businesses can still reclaim VAT on fuel used for business trips if they also pay a VAT fuel scale charge. This is a simplified way of taxing private use fuel. The HMRC will accept a 'fuel scale charge' form as sufficient evidence of business use if there are no private miles recorded. This form can be downloaded from the HMRC website. It is important to note that the fuel scale charge is based on the emissions of the vehicle and gets updated regularly, so businesses must ensure they are using the latest rate.
Businesses can also claim VAT on additional costs such as repairs and any accessories fitted for business use. They can also claim back VAT on fuel used to power machinery in an industrial process, such as manufacturing. It is beneficial for businesses to familiarise themselves with the regulations on VAT reclaim to ensure compliance and maximise their VAT reclaim.
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VAT on fuel for personal use cannot be reclaimed
In the UK, fuel is subject to a flat rate of fuel duty of 52.95p per litre, as well as 20% VAT, which is calculated based on both the product price and the duty. While VAT on fuel can be reclaimed, there are specific conditions that must be met, and it is not available for personal use.
VAT on fuel can only be reclaimed if the fuel is used exclusively for business purposes and not for any private or personal trips. This means that if a vehicle is used for both business and personal purposes, the VAT on fuel cannot be reclaimed unless specific conditions are met.
To reclaim VAT on fuel for business trips, detailed mileage records must be maintained, clearly differentiating between business and personal mileage. This allows for the calculation of the VAT reclaim amount based on the portion of fuel used for business purposes. It is important to note that this applies to all vehicles in the business, and opting out of reclaiming VAT on one vehicle means VAT cannot be claimed for any other vehicles used by the business.
Additionally, businesses can choose to reclaim all the VAT and pay the appropriate fuel scale charge for their vehicle. This option may be preferable if the business mileage is low, as the fuel scale charge may be higher than the VAT that can be reclaimed. It is worth noting that VAT receipts and necessary evidence must be retained for up to four years to support any VAT reclaim submissions.
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VAT on fuel for foreign-going ships or aircraft is zero-rated
In the UK, fuel duty is currently levied at a flat rate of 52.95p per litre for petrol and diesel, with VAT at 20% charged on top. However, there are some exceptions where VAT on fuel is zero-rated or exempt. One such exception is fuel for use in foreign-going ships or aircraft.
According to HMRC, fuel supplied for use in foreign-going ships or aircraft is zero-rated for VAT purposes. This means that no VAT is charged on the fuel used by these vehicles when they are travelling outside of the UK. This relief applies to commercial vessels and aircraft but does not include privately-owned or chartered pleasure craft.
The zero-rating of VAT on fuel for foreign-going ships and aircraft is outlined in the VAT Act 1994 and other relevant legislation. It is important to note that this concession only applies to certain types of marine fuel and does not include petrol, DERV, or lubricating oil. Additionally, the fuel must be supplied for use on a commercial voyage or flight leaving the UK.
Businesses operating aircraft may also be able to take advantage of VAT exemptions or zero-rating on fuel purchases. For example, customers fuelling at Jetex locations can receive VAT exemptions or zero-rating if they meet certain criteria and make arrangements with a Jetex representative in advance. At non-Jetex locations, customers may need to present an Air Operator Certificate (AOC) and ensure their flight is indicated as "commercial" or "non-leisure" to receive similar treatment.
VAT on fuel for foreign-going ships and aircraft being zero-rated helps to reduce the cost of operating these vehicles and can have a significant impact on businesses and international travel. It is important for businesses to understand the applicable VAT rules and exemptions to ensure compliance and optimise their fuel costs.
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VAT on fuel oil, gas oil or kerosene is taxed at a reduced rate
In the UK, VAT on fuel oil, gas oil or kerosene is taxed at a reduced rate under specific conditions. These conditions are outlined in Section 3 of the Fuel and Power VAT Notice 701/19 on gov.uk. According to this, supplies of fuel oil, gas oil, or kerosene for a qualifying use are subject to the reduced rate, provided they meet certain criteria.
Firstly, they must not be supplied as motor or heating fuel for use other than for an excepted machine. This is in reference to changes to rebated diesel and biofuels that came into effect on April 1, 2022. Secondly, they must be classified as 'heavy oil' as defined by the Hydrocarbon Oils Act 1979. Lastly, they must be either chargeable with excise duty at a rebated rate, relieved from excise duty, or have special dispensation as outlined in Section 6.1.5 of the aforementioned VAT Notice.
Examples of qualifying uses of fuel oil, gas oil, or kerosene that are eligible for the reduced VAT rate include heavy oil, primarily red diesel, used as fuel for propelling private pleasure craft. This must be declared by the customer under Section 14E(3) of the Hydrocarbon Oil Duties Act 1979. Additionally, kerosene (avtur) used as fuel for private pleasure-flying is also eligible, provided it is declared under Section 13AC(3) of the same Act.
It is important to note that oils described as fuel oil, gas oil, or kerosene that do not meet the requirements set out in Section 6.1 of the VAT Notice are standard-rated. This includes all other oils such as crude oil, other heavy and light hydrocarbon oils, lubricating oils, and lubricants. Furthermore, the supply of power for a qualifying use, where the equipment is operated by the supplier, is liable for VAT at the reduced rate. However, the hire of a generator for operation by the customer is standard-rated, as is the supply of the installation of standby equipment.
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Fuel duty is levied per unit of fuel purchased
In the UK, fuel duties are levied on purchases of petrol, diesel, and other fuels. Fuel duty is included in the price paid for fuel and is charged per unit of fuel purchased. The rate of duty depends on the type of fuel being purchased. For example, the standard rate for petrol and diesel is 52.95 pence per litre, while the rate for liquefied petroleum gas is 28.88 pence per kilogram.
The UK government has temporarily cut the fuel duty rate by 5 pence per litre for 2022-23, which has been extended to the following years: 2023-24, 2024-25, and 2025-26. This reduction also applies to biodiesel and bioethanol. The duty rate for marked gas oil, primarily used for off-road diesel, is 10.18 pence per litre.
Fuel duties are a significant source of revenue for the government, expected to raise billions of pounds annually. However, due to the shift towards electric vehicles and reduced fuel consumption, fuel duty receipts as a share of GDP have been declining. The real value of the duty is also expected to decrease over time due to inflation.
VAT is applied to the fuel price after the fuel duty has been added. For example, for a litre of petrol, the pre-tax price plus the fuel duty of 52.95 pence is calculated, and then 20% VAT is charged on that total, resulting in an additional 10.59 pence in VAT.
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Frequently asked questions
In the UK, VAT is charged at 20% on the product price and the duty.
The current fuel duty rate is 52.95 pence per litre for petrol and diesel.
Yes, if you are a business, you can reclaim the VAT paid on fuel used for business trips. You will need to keep detailed mileage logs and fuel receipts as proof.
You can use a VAT refund calculator to estimate how much VAT you can reclaim. You will also need to calculate your fuel scale charge.
Fuel supplied for use in foreign-going ships or aircraft is zero-rated for VAT.
