Fuel Scale Charges: VAT Update for Mixed-Use Vehicles from 1 May 2025
Fuel Scale Charges: VAT Update for Mixed-Use Vehicles from 1 May 2025
Is Your Business Affected?
If your VAT-registered business covers motoring costs, including fuel used for both business and personal travel, then this update is important for you. With changes to HMRC’s fuel scale charge rates effective from 1 May 2025, businesses must review their VAT treatment on fuel expenses to remain compliant and optimise VAT recovery.
VAT and Fuel: What You Need to Know
Businesses can reclaim VAT on fuel expenses only to the extent that the fuel is used for taxable business activities. When there’s private use of the vehicle, HMRC expects either a restriction of input tax or for you to declare output tax via a fuel scale charge.
There are three ways to handle VAT on fuel:
Reclaim all the VAT and account for output tax through the fuel scale charge.
Forego VAT recovery entirely, no VAT reclaimed, no output tax due.
Maintain accurate records of business vs private mileage and reclaim VAT only on business usage.
Understanding the Fuel Scale Charge
The fuel scale charge is a simplified method that lets businesses reclaim all VAT on fuel, while declaring a fixed amount of output tax to cover the private element of fuel use. The charge is based on:
The vehicle’s CO₂ emissions
The length of your VAT accounting period (monthly, quarterly, or annually)
The calculated charge must be included in Box 1 of your VAT return.
Important: If you opt to use the fuel scale charge method, it must be applied consistently across all cars used for both business and private travel. You can't mix and match VAT methods for different cars within the same business.
Exceptions:
Pool cars and business-only vehicles (with no private use) are exempt from the charge.
Vans typically fall outside the fuel scale charge rules, unless private use is more than incidental. In those cases, a reasonable input VAT restriction is required.
What’s Changing from 1 May 2025?
HMRC will increase the VAT road fuel scale charge rates starting 1 May 2025. These new rates apply from the beginning of your next VAT accounting period starting on or after this date.
If your current VAT period begins before 1 May, continue using the old rates until that period ends.
📄 To view the new rates: GOV.UK: VAT road fuel scale charges 2025–2026
Steps You Should Take
🔍 Check your accounting software: Ensure it's updated to handle the new scale charge rates.
🧮 Review your VAT strategy: Assess whether the fuel scale charge still benefits your business, or if mileage tracking might offer better value.
📊 Ensure consistency: Apply your chosen VAT treatment method across all applicable vehicles.
🤝 Need help? Zyla Accountants can provide tailored advice to support your VAT compliance and optimise your recovery position.
Need Expert VAT Guidance?
At Zyla Accountants, we help businesses navigate complex VAT rules with clarity and confidence. If you're unsure about the best way to handle fuel expenses, or need help adjusting to the new rates, get in touch with our VAT team for personalised support.