Businesses Maintain Right to Claim VAT on Employee Fuel Expenses

From the 1 January 2006, new arrangements will be in place that will allow businesses to continue the recovery of VAT on road fuel purchased by employees. Until recently it was thought this much-valued provision would have to be given up.

Employers will be able to continue to treat as input tax the VAT incurred by their employees on fuel costs that are subsequently reimbursed by the employer, either on the basis of the actual cost of the fuel or by means of a mileage allowance. Employers can recover only that VAT on fuel which is for use in their businesses in making taxable supplies and must hold a VAT invoice in support of their claim. This means that the current arrangements in practice for businesses to recover VAT on fuel purchased by employees are unchanged, except that businesses must now retain VAT invoices to support their claims. The invoice can be a full VAT invoice or a less detailed VAT invoice, as appropriate.