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VAT on diesel keeps rising while fuel duty stands still

ended 27. September 2026

Average UK diesel hit 198.32p a litre on 25 September, within a penny of its 199.09p record, the RAC says. Fuel duty is held at 52.95p until 31 December, but 20% VAT is added on top of the price, duty included, so it rises with every penny. About 33p of that litre is VAT, as is about 9.3p of the 55.9p rise since 28 February.

The catch is who claims it back. A VAT-registered firm generally can, unless it uses the Flat Rate Scheme. A courier, plumber or small haulier under the £90,000 threshold who has not registered pays all of it. Duty is due by default to rise to 55.95p on 1 January and 57.95p on 1 March 2027, steps of 3.6p and 2.4p a litre at the pump once VAT is added. The government will confirm final rates at the Budget on 28 October.

  1. Should the duty rise due on 1 January go ahead with diesel this close to a record, or be dropped at the Budget?
  2. Is it fair that a van driver under the VAT threshold pays VAT on every litre a registered rival can reclaim, and which of your clients feels it most?
  3. Do you have a client whose fuel bill has changed a business or household decision this year? Please give as much colour and detail as possible.

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Tony RedondoVerified
Founder at Cosmos Currency Exchange
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Freeze January's duty increase at the October Budget, full stop. Diesel's already sitting at 198.32p/litre; add the scheduled 3.6p and pumps break £2.00, dragging inflation through transport and agriculture with it. The Treasury isn't the one losing out here. VAT alone pulls in roughly 33p a litre, 9.3p more than early 2026. But below the £90,000 VAT threshold, the playing field tilts hard. Unregistered sole traders eat £26.40 in unrecoverable VAT on every 80-litre fill-up that registered rivals simply reclaim. Take one Southwest haulage firm client of mine, three generations deep who have had to shrink their fleet, shelve vehicle replacements and cut headcount just to stay upright under the compounding weight of rising NICs, minimum wage hikes, tighter employment law, and fuel and energy costs that show no sign of easing. The only growth in every postcode they are seeing is on the debit side of the ledger.