Can I reclaim VAT on fuel and vehicle costs?

Understanding VAT recovery on fuel and vehicle costs

VAT recovery on fuel and vehicle costs is one of those topics that sounds straightforward—until you try to apply it to real life. The rules depend on how the vehicle is used, who uses it, what type of costs you are talking about, and whether there is any private use. On top of that, the treatment can vary depending on whether the vehicle is a car, a van, a motorcycle, or a commercial vehicle, and whether the fuel is used for business journeys, commuting, or personal trips.

This article explains the principles behind reclaiming VAT on fuel and vehicle costs, how common scenarios are usually treated, and what records you need so that your reclaim position is clear and defensible. While the broad logic is consistent—VAT is generally recoverable to the extent costs relate to taxable business activity—the detail matters, and small misunderstandings can lead to either missing legitimate reclaims or claiming VAT you are not entitled to.

What “reclaiming VAT” actually means

When a VAT-registered business buys goods or services, the supplier may charge VAT (input VAT). If the purchase is used for the business’s taxable supplies, the business can normally reclaim that VAT on its VAT return. If the purchase is used for exempt activities, or for private use, the reclaim may be restricted or blocked altogether. Many businesses have a mix of taxable and exempt income, and many vehicles are used partly for business and partly privately, which is why the reclaim position often becomes nuanced.

There are two key questions to ask for any vehicle-related cost:

1) Is the cost incurred for business purposes, and does it relate to making taxable supplies?

2) If there is any private or non-business use, how is that handled—by restricting the reclaim or by accounting for VAT on private use?

Those two questions underpin everything that follows.

Different categories of vehicle and why they matter

VAT rules can draw important distinctions between “cars” and “commercial vehicles.” In many jurisdictions, cars are treated more strictly because private use is common and hard to separate. Vans and other commercial vehicles are often treated more generously, particularly where they are clearly used for business. However, classification isn’t always obvious. A vehicle that looks like a van may be treated as a car for VAT purposes if it is primarily designed for carrying passengers rather than goods, or if it has certain seating configurations. The details of how the vehicle is constructed and used can matter as much as what it is called in everyday language.

For practical purposes, you should be clear whether you’re dealing with:

• A car (often subject to stricter input VAT blocks or restrictions).

• A van or commercial vehicle (often more likely to allow recovery if used for business).

• A pool vehicle (shared, controlled, and not available for private use in practice).

• A vehicle intended for resale, leasing, taxi/private hire, driving instruction, or other specialist use (often treated differently).

Fuel VAT: the core issue is business vs private use

Fuel is a running cost, and fuel VAT recovery tends to be where businesses either leave money on the table or make risky claims. The main reason is that fuel usually gets used in mixed ways: business trips, commuting, and personal journeys. The VAT system generally wants you to reclaim input VAT only to the extent the fuel is used for business purposes that relate to taxable supplies. If you can’t separate business and private use robustly, you may need to use a permitted simplification or accept a restriction.

In practice, fuel VAT recovery tends to fall into a few common approaches:

Approach 1: Reclaim VAT only on clearly business fuel

If you can reliably identify business fuel purchases (for example, you have a separate fuel card for business use only, and strict policies that prevent private use), you may be able to reclaim VAT on those purchases. This can work best for businesses with commercial vehicles, company vans, or fleets where drivers are not permitted to use fuel for private journeys.

The key here is evidence. It is not enough to state that fuel is “for business.” You need controls and records that make that statement credible—policies, monitoring, and ideally mileage records that reconcile with fuel usage.

Approach 2: Reclaim VAT on all fuel, then account for private use

Some systems allow a business to reclaim VAT on fuel and then make an adjustment to reflect private use—effectively paying back VAT related to private motoring through a VAT charge. This can simplify bookkeeping because you claim the VAT on fuel invoices as they arise, then deal with private use via a periodic calculation.

However, the adjustment needs to be done correctly, and it can be easy to get wrong if mileage logs are incomplete or if multiple vehicles and drivers are involved. You need a method that is consistent, supported by records, and applied across the relevant vehicles.

Approach 3: Do not reclaim VAT on fuel at all

This may sound overly cautious, but it is surprisingly common, especially for businesses with a small number of cars used by directors or employees where private use is unavoidable and record-keeping is imperfect. If you never reclaim VAT on fuel, you avoid having to track private use adjustments. The trade-off is that you may be giving up legitimate recoveries on business mileage.

For businesses that want simplicity and low risk, this can sometimes be the preferred option—particularly where the potential VAT reclaim is relatively small compared to the administrative burden of maintaining mileage logs and calculations.

Vehicle purchase VAT: when you can and can’t reclaim

The biggest single-ticket question is often whether you can reclaim VAT on buying a vehicle. This is where “car vs commercial” and “private availability” often become decisive.

In many VAT systems, input VAT on the purchase of a car is blocked unless you can demonstrate that the car is used exclusively for business purposes and is not available for private use. “Available for private use” can be broader than people expect. If a car is taken home by an employee or director and could be used privately, that can undermine a claim of exclusive business use, even if the person insists they only use it for work.

By contrast, input VAT on vans and commercial vehicles is often recoverable if the vehicle is used for business purposes, though you may still need to consider restrictions if there is significant private use.

What counts as “exclusive business use” in practice?

Exclusive business use usually requires more than good intentions. It typically requires:

• The vehicle is used only for business journeys.

• The vehicle is not made available for private use (including informal or occasional use).

• The business can demonstrate that private use does not happen, usually through policies, controls, and logs.

• The vehicle is kept at business premises and access is controlled, or there are other strong safeguards.

If a vehicle is used by a working director and parked at home overnight, it can be hard to argue it is not available for private use. Some businesses try to rely on written policies alone, but without practical controls and mileage evidence, such claims can be weak.

Special cases where car purchase VAT recovery may be allowed

Even where car purchase VAT is normally blocked, many VAT systems allow recovery in certain specialist circumstances. Common examples include vehicles used primarily for:

• Taxi or private hire services.

• Driving instruction.

• Self-drive hire or leasing as a core business activity.

• Vehicles bought specifically for resale (stock-in-trade) by motor dealers.

If your business falls into one of these categories, the rules can be more favourable, but you will need to show that the vehicle is used in that qualifying activity, and you must keep documents that support it.

Leasing a vehicle: VAT recovery can differ from purchasing

Leasing changes the VAT profile because VAT is charged on the lease rentals rather than mainly upfront. In many systems, the VAT rules on leased vehicles can be more flexible than on purchased cars, but restrictions may still apply where the vehicle has private use. Often, a percentage of the VAT on lease payments can be recovered, with the remainder treated as relating to private use.

The attractiveness of leasing sometimes comes from this timing and recoverability: instead of a large blocked VAT amount on purchase, you may be able to recover some VAT continuously over the lease term (subject to the rules that apply to your situation). But remember: “more flexible” does not mean “automatic.” You still need invoices that show VAT correctly and a clear business rationale for the vehicle.

Repairs, servicing, and maintenance: usually more recoverable than purchase VAT

Many businesses find that even if they can’t reclaim VAT on purchasing a car, they may still be able to reclaim VAT on certain running costs—subject to restrictions for private use and the rules in their VAT system.

Common vehicle running costs include:

• Servicing and repairs.

• Replacement parts and tyres.

• Breakdown cover.

• Cleaning and valeting (where business-related).

• Vehicle tracking or telematics.

• Congestion charges, tolls, and parking (note: some of these may be outside the scope of VAT or treated differently, depending on how they are charged).

As a general principle, if the cost supports business activity and you have a valid VAT invoice, VAT may be reclaimable to the extent of business use. However, where a vehicle is used privately as well, you may need to restrict the claim or apply a private use adjustment.

Insurance: VAT is often not charged, so there may be nothing to reclaim

A common misconception is that you can reclaim VAT on all vehicle expenses. Vehicle insurance premiums are often exempt from VAT (or taxed differently), so insurers typically do not charge VAT on the premium itself. That means there may be no input VAT to reclaim. That said, some insurance-related fees or add-ons might carry VAT depending on the provider and service, so it is worth checking the invoice detail rather than assuming.

Road tax, fines, and penalties: not typical VAT reclaims

Another area of confusion is statutory charges and penalties. Items like road tax and many government charges may not carry VAT, and fines or penalties are generally not treated as consideration for a supply, meaning there is usually no VAT charged and nothing to reclaim. Even when a third party pays a fine on your behalf and recharges you, that does not necessarily create a VAT reclaim opportunity. Always inspect the documentation: if no VAT is charged, you cannot reclaim it.

Employee mileage claims: different from reclaiming VAT on fuel receipts

Some businesses reimburse employees for business mileage in their own cars. This is not the same as the business buying fuel directly. When an employee is paid a mileage allowance, the payment is usually intended to cover fuel, wear and tear, and other running costs. Because the business is not necessarily receiving VAT invoices for the underlying fuel purchases, reclaiming VAT can be more complicated.

Some VAT systems allow a business to reclaim VAT on the fuel element of mileage payments if strict conditions are met—typically including evidence of the VAT paid on fuel and a method to isolate the fuel portion of the mileage rate. This can be administratively heavy. Many businesses choose either not to reclaim VAT in this way or to use simplified schemes where permitted.

Commuting vs business travel: why the distinction matters

From a VAT perspective, commuting is often treated as private travel rather than business travel. That surprises many business owners, especially directors of small companies who see a trip from home to the office as part of “work.” VAT treatment often follows a stricter view: business travel is travel undertaken in the course of making supplies—visiting clients, attending sites, traveling between workplaces—while commuting to a normal place of work is private.

This matters because if fuel or vehicle costs relate substantially to commuting, a reclaim based on “business use” may be overstated. If you are using mileage logs, your categories should be clear, consistent, and aligned to how your VAT system treats commuting.

Mixed business and private use: restrict the reclaim or make an adjustment

If a vehicle is used both for business and privately, your VAT recovery should reflect that split. There are two common mechanisms:

• Restrict the input VAT you reclaim so you only claim the business proportion.

• Reclaim the full input VAT (where permitted) and then account for VAT on the private use portion.

Which approach is appropriate depends on the specific VAT rules you are operating under and the nature of the cost. What matters is that you use a rational method, apply it consistently, and keep evidence that supports the percentages used.

A robust split is usually based on mileage: business miles divided by total miles over a representative period. But you must keep a reliable log of total mileage and business journeys. If total mileage is guessed, the method becomes fragile.

What records do you need to support VAT claims?

Good record-keeping is the difference between a confident reclaim and a risky one. For fuel and vehicle VAT claims, the records that typically matter include:

• VAT invoices: The invoice must meet the requirements of a valid VAT invoice, including the supplier’s details, VAT number, date, description, net amount, VAT amount, and gross total.

• Evidence of payment: Bank statements or card statements that tie to invoices can support that the cost was genuinely incurred.

• Mileage logs: For vehicles with any private use or where business-only use is claimed, mileage logs are often critical. These should record dates, start and end mileage, journey purpose, start/end locations, and whether the trip is business or private.

• Vehicle policy documents: Written policies on private use, fuel cards, and permitted journeys can help, especially if they are enforced.

• Telematics or tracking reports: Where available, these can provide independent corroboration of usage patterns.

• Allocation workings: If you restrict VAT claims by a percentage, keep a clear calculation showing how you arrived at the percentage, the period it covers, and why it is reasonable.

Fuel cards: helpful, but not a magic solution

Fuel cards can make record-keeping easier because you receive consolidated invoices. That can be a big help for VAT compliance, but only if the invoice is correctly issued to the business and shows VAT properly. If a fuel card is used for private fuel as well, you still face the business/private split question. The card does not “turn private fuel into business fuel.” What it does do is provide clearer paperwork and easier reconciliation.

Electric vehicles and charging: VAT questions are evolving in practice

As electric vehicles become more common, VAT questions increasingly relate to charging rather than petrol or diesel. The fundamental principles are the same: VAT is generally recoverable to the extent the electricity (or charging service) is used for taxable business activity. But the practical scenarios can be trickier, such as:

• Charging at the workplace (where the business pays the electricity bill).

• Charging at public charging points (where VAT may be charged on the charging service).

• Charging at home (where a director or employee charges a company car using domestic electricity).

Home charging is especially complex because the electricity supply is usually contracted to the individual, the bill may not be in the company’s name, and it can be difficult to isolate business charging from household consumption. Some businesses reimburse employees/directors for home charging based on metered chargers, charging app records, or agreed rates. The VAT recovery position depends heavily on the documentation and how the VAT system treats such reimbursements.

Company car provided to employees: VAT and “benefit” thinking

When a company provides a car that employees can use privately, that is often treated as a form of non-cash benefit for other tax purposes. For VAT, the focus remains on whether the business is reclaiming input VAT on costs and how private use is treated. If private use is substantial, a full input VAT reclaim on fuel without adjustment is unlikely to be appropriate. Even for repairs and servicing, you may need to consider whether the VAT system requires a restriction or an output VAT charge to reflect private benefit.

The safest practical approach is usually to adopt a documented method that aligns with your specific VAT rules and the realities of vehicle use. If the car is clearly available for private use, assume that private use must be accounted for somehow unless your system has a specific block that already prevents recovery.

Vehicles used by directors: extra scrutiny is common

Directors’ vehicles often attract attention because the line between business and personal use can be blurred. If you want to reclaim VAT on fuel or other costs relating to a director’s car, be prepared to show strong evidence of business use and an appropriate treatment of private use. If the director’s car is used for commuting and personal trips, a business-only claim is usually difficult to support.

This does not mean directors can never reclaim VAT on vehicle costs. It means the method needs to be disciplined: clear logs, consistent categorisation, and a calculation that makes sense.

What about hiring vehicles, taxis, and travel expenses?

Vehicle-related VAT recovery is not limited to owning or leasing. Businesses often incur VAT on:

• Short-term vehicle hire.

• Taxis and ride-hailing services.

• Courier and transport services.

• Car club usage.

These costs are often easier to treat because they are directly linked to business journeys and supported by invoices. However, you still need valid VAT invoices (or receipts that qualify) and a business purpose. If the journey is private—such as travel to a social event—VAT recovery may be restricted.

Common mistakes that lead to overclaiming or underclaiming

Here are frequent errors businesses make with VAT on fuel and vehicle costs:

• Claiming VAT without a valid VAT invoice. Card receipts or simplified receipts may not be enough depending on the rules.

• Treating commuting as business travel.

• Claiming full VAT on fuel for a car with private use and making no adjustment.

• Assuming all vehicle costs are blocked because the car purchase VAT is blocked (often not true).

• Reclaiming VAT on items that have no VAT (insurance premiums, fines, some statutory charges).

• Not keeping mileage logs but still applying a “business percentage.”

• Mixing vehicles and costs in a way that makes the audit trail unclear.

How to choose a method that suits your business

There is rarely a one-size-fits-all “best” method. A good approach balances:

• Accuracy: Does it reflect how vehicles are actually used?

• Evidence: Can you prove the figures if asked?

• Administrative effort: Can you maintain it month after month?

• Risk tolerance: How comfortable are you with assumptions vs hard data?

For a small business with a director’s car used partly privately, a simple method that avoids aggressive claims may be sensible. For a logistics business with vans used exclusively for work, a more comprehensive reclaim supported by robust logs and fuel card invoices may be appropriate.

Practical steps to improve your VAT recovery position

If you want to reclaim VAT correctly and confidently, consider these practical steps:

• Separate business and private where possible: If you can keep a vehicle as business-only (or create a genuine pool vehicle arrangement), your VAT position becomes clearer.

• Implement a mileage log system: Even a simple digital log can create reliable evidence. Consistency is more important than complexity.

• Use fuel cards with clear policies: Make it explicit whether private fuel is allowed, and monitor exceptions.

• Keep every relevant VAT invoice: For repairs, servicing, tyres, and accessories, the VAT invoice is your foundation.

• Review the VAT treatment of each cost category: Don’t assume the same rule applies to purchase, lease rentals, fuel, repairs, and insurance.

• Reassess periodically: If business use changes—new employees, new routes, more remote work—your business/private split may need updating.

Worked scenario examples to illustrate the logic

Consider a few simplified examples to see how the logic plays out in practice.

Example 1: A tradesperson’s van used only for work

A VAT-registered tradesperson uses a van to carry tools and materials. The van is kept at a yard, used only for jobs, and not used privately. Fuel is bought on a fuel card and invoiced to the business. In this scenario, VAT recovery is often relatively straightforward: input VAT on fuel and running costs is likely to be reclaimable, provided the invoices are valid and the usage is genuinely business-only. The business should still keep a mileage log or other evidence to support the claim if questioned.

Example 2: A director’s company car with mixed use

A small company provides a car to its director. The car is used for client meetings, commuting, and personal errands. The company pays for fuel. Here, a full VAT reclaim on fuel without adjustment is risky. A more defensible approach is either to reclaim VAT only on demonstrable business fuel (supported by mileage and calculations) or to use a method that accounts for private use appropriately. Repairs and servicing may still allow VAT recovery in part, depending on the rules, but the company should be prepared to restrict claims to business use or account for private benefit.

Example 3: An employee uses their own car and claims mileage

An employee uses their personal car for occasional business visits and claims mileage expenses. The business reimburses the employee using an approved mileage rate. VAT recovery is not automatic because the business may not have VAT invoices for the fuel. If the VAT system allows recovery on the fuel element of mileage, the business will need a compliant method and supporting evidence. If not, the business may simply treat the mileage payment as an expense with no VAT to reclaim.

What you should do before submitting your VAT return

Before you include fuel and vehicle VAT on your VAT return, it helps to run a quick internal checklist:

• Do you have valid VAT invoices for the amounts you are claiming?

• Are you certain which costs include VAT and which do not?

• If the vehicle has private use, have you restricted your claim or made the appropriate adjustment?

• Are your mileage logs up to date and consistent with fuel usage?

• If you are claiming VAT on a vehicle purchase, can you demonstrate that the claim is permitted and that private availability is not an issue?

This kind of review can prevent avoidable mistakes, especially when staff submit receipts that are incomplete or when vehicle usage changes over time.

Conclusion: yes, but only under the right conditions

So, can you reclaim VAT on fuel and vehicle costs? In many cases, yes—but the extent of what you can reclaim depends on the vehicle type, the nature of the cost, and how the vehicle is used. Fuel VAT is often reclaimable for business travel, but mixed use means you must either restrict your claim or account for private use in an approved way. VAT on vehicle purchases—especially cars—can be restricted or blocked unless strict conditions are met. Running costs like repairs and servicing can be more recoverable, but again you must consider private use and keep proper invoices.

The most important takeaway is that VAT recovery is not just about what you spend; it is about what the spending is for. If you can show a clear link to taxable business activity, supported by records and a consistent method, you can often reclaim VAT confidently and compliantly. If you cannot, it may be safer to simplify and reclaim less—or restructure how vehicles and fuel are managed—than to make claims that are hard to defend later.