From 1 May 2025, HM Revenue & Customs (HMRC) reduced its road fuel scale charges, reflecting a drop in fuel prices.

Businesses using company cars will see a cut of nearly six per cent across most bands, with new rates applying to VAT periods starting on or after that date.

Although the revised rates may result in marginal savings, they also highlight the importance of applying the fuel scale charge correctly.

Getting the fuel scale charge wrong can cause problems with your VAT records and may trigger questions from HMRC.

How to apply VAT fuel scale charges for company vehicles

The fuel scale charge is used to account for VAT on fuel used in company cars for both business and personal journeys.

Instead of tracking mileage, the business applies a fixed charge to each relevant vehicle, based on its CO₂ emissions and the VAT accounting period (monthly, quarterly or annually).

This simplifies reporting but requires accuracy. The charges are updated annually and must be applied using the correct rate for the accounting period in question.

Choosing the right method to reclaim VAT on fuel

HMRC allows businesses to choose between two methods for reclaiming VAT on road fuel:

• Using the fuel scale charge
• Keeping detailed records to separate business and private fuel use

The two approaches cannot be combined across different vehicles.

Businesses that opt for the scale charge must apply it consistently to all cars used for mixed journeys.

Cars with no private use, such as genuine pool cars, can be excluded, but proper documentation is required to support their status.

Why using different VAT recovery methods can cause compliance issues

Applying the scale charge to some vehicles and mileage logs to others is not permitted under HMRC rules.

This can cause issues during VAT inspections or reviews, especially if private use cannot be clearly excluded.

To stay compliant, businesses should adopt a single method for all eligible cars.

Where no private use exists, this should be clearly evidenced with usage policies, logs, and restricted access controls.

Using the correct CO₂ band for fuel scale charges

The amount charged depends on the CO₂ emissions of the vehicle. For example, a company car with 180g/km emissions will attract a VAT-inclusive charge of £1,721 from May 2025, down from £1,825 the year before.

Errors often arise when using outdated charge tables or when a vehicle’s emissions band has not been checked accurately.

Always use the most current HMRC rates and ensure that emissions data is drawn from reliable sources, such as vehicle registration documents.

Applying VAT fuel charges based on the correct accounting period

Fuel scale charges differ depending on whether your VAT returns are filed monthly, quarterly or annually.

Businesses must apply the new charges from the beginning of the next prescribed VAT period that starts on or after 1 May 2025.

Applying the wrong rate for the length of your accounting period can distort VAT recovery and lead to inaccuracies in your returns.

What qualifies as a pool car for VAT fuel purposes

Pool cars are exempt from the fuel scale charge, but only where strict conditions are met. These include:

• The car is not allocated to any one person
• It is kept on business premises
• It is not used for private travel, except for home-to-work journeys in exceptional circumstances

Assumptions should not be made about a car’s status.

HMRC expects businesses to retain evidence of usage and policies that clearly restrict private access.

Contact us to review whether your current approach meets HMRC requirements and to ensure the new charges are applied accurately.