Businesses operating company vehicles will soon face new VAT fuel charges set to take effect from May 1, following the latest update published by HMRC on April 16.
Companies have been granted only two weeks to prepare for the upcoming changes, which are designed to simplify the process of accounting for VAT on private fuel consumption while encouraging a gradual shift toward the use of vehicles with lower carbon emissions.
According to GB News, the new system will standardize calculations across different accounting periods, aiming to reduce administrative burdens for businesses. The updated scheme reflects HMRC’s broader efforts to align tax policy with environmental goals.
Updated Charges and Implementation Details
The updated charges will remain in place until April 30, 2026. They are designed to account for the private use of company vehicles, including commuting to and from work. The flat-rate values apply individually to specific vehicles for the relevant accounting period, streamlining the calculation process for businesses.
According to HMRC,
“You’ll need to work out the correct road fuel charge, based on your car’s CO2 emissions, and the length of your VAT accounting period. This will be either one, three, or 12 months.”
The system simplifies the process of calculating VAT on fuel used for both private journeys and commuting, providing a standardized approach for companies managing multiple vehicles.
Impact on Different Emission Categories
The adjustments bring a decrease in fuel charges across all CO2 bands compared to previous years. For vehicles with CO2 emissions of 120g/km or less, the annual charge has dropped from £702 to £661. Mid-range vehicles with emissions around 175g/km now face a reduced annual charge from £1,752 to £1,652.
Even the highest-emitting vehicles, producing 225g/km or more, will see a lower annual charge of £2,314, compared to the previous £2,454. Monthly charges have also decreased, with low-emission vehicles now charged £54 per month instead of £58, and high-emission vehicles charged £192 instead of £203.
These reductions apply across all CO2 emission bands and accounting periods, whether monthly, quarterly, or annually.
Classification for Older and Bi-fuel Vehicles
For vehicles too old to have an official CO2 emissions figure, classifications will be based on engine size. In addition, for bi-fuel vehicles, where two CO2 emissions figures are available, the lower of the two figures should be used to determine the appropriate VAT charge.
Herbert Lewis Williams & Associates explained:
“Where the CO2 emission figure is not a multiple of five, the figure is rounded down to the next multiple of five to determine the level of the charge. For a bi-fuel vehicle which has two CO2 emissions figures, the lower of the two figures should be used. There are special rules for cars which are too old to have a CO2 emissions figure.”
Updated Publication Process for Fuel Scale Charges
Previously part of the annual Budget process, the revalorization of fuel scale charges now follows a different approach. Herbert Lewis Williams & Associates stated:
“The revalorisation of fuel scale charges is no longer part of the Budget process, and the tables are instead published by HMRC annually.”
This change allows HMRC to update the charges more flexibly and maintain consistency year-over-year, reflecting evolving emissions standards and fiscal policies.
Businesses must report the correct VAT charges on their returns to comply with HMRC regulations. Incorrect handling of the new rates could result in significant tax implications for employees who use company vehicles for private journeys, including commuting.
Employees and employers alike are advised to manage the calculations carefully to avoid penalties and ensure full compliance with updated VAT requirements.
