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If you are purchasing fuel in UK or paying mileage allowance to your employees for using their own vehicles for work purpose, you are entitled to claim VAT on mileage expenses. You can claim VAT as per the mileage rates specified by HMRC. Basically, the rates specified depend upon the type of fuel (Diesel, petrol or LPG) you are using for your vehicle. It is not applicable on the business trips outside UK. In this blog, you will not only know about the fuel rates but also know about the exact procedure of calculating the VAT on mileage expenses. You must keep a record of fuel receipts/documents in order to claim VAT on mileage expenses. If fuel receipts/documents are not available with you, HMRC may trash the claim you are opting for.

In this article we cover:

Aware of claiming back VAT on mileage expenses?

If you use your own car for business purposes then you can usually claim mileage expenses or mileage allowance payments (e.g. 45 pence per mile). Your business can then also claim VAT on the fuel portion of the mileage expense subject to the business being VAT registered and not on the flat-rate scheme.

When an employee (or director) uses their own vehicle for business trips they can claim an allowance for their mileage. As per HMRC rates, 45 pence per mile is allowed for cars for the first 10,000 miles in a tax year, after that it reduces to 25 pence per mile.

Also Read: Company Car Tax Mileage Allowance Rates

Mileage Allowance Payments (MAPs) includes few aspects i.e. the cost of fuel, wear and tear, insurance and vehicle tax spent while performing business trips and only the VAT portion can be recovered by the business on the cost of fuel or fuel portion solely.

Reclaiming VAT on Mileage

As a business, you can reclaim the VAT on your employees mileage expenses if you’re paying your employees a mileage allowance for using their own vehicle for work. You will only be able to claim VAT on the fuel portion of the mileage claim.

VAT on Mileage Expenses

Advisory Fuel Rates

For calculation of fuel portion of a business trip, we can use a simple method by using HMRC published Advisory Fuel Rates. The rates are published by HMRC to cover the amount which a company can pay tax free to the person who drives company car for business purposes and pays the money from his own pocket towards fuel cost.

The rate varies based on the type of fuel (petrol, diesel or LPG) and engine size for your car, van or motorbike. For hybrid cars one can use the relevant section prescribed by HMRC.

The advisory fuel rates applicable from 1st March 2020 are given below:

Petrol

Engine Size Petrol – Pence per mile LPG - Pence per mile
400cc or less 12p 8p
1401cc - 2000cc 14p 10p
Over 2000cc 20p 14p

Diesel

Engine Size Diesel – Pence per mile
1600cc or less 9p
1601cc - 2000cc 11p
Over 2000cc 13p

What about electric cars?

The advisory rate for fully electric cars is 4 pence per mile for mileage purpose. The VAT on electricity cannot be recovered as electricity is not considered fuel for car fuel benefit purposes but yes if you are using your domestic electricity for charging purpose, then you can claim VAT on the domestic electricity supply in case you are reimbursing it to the company car driver.

How to calculate VAT on mileage Expenses?

It would be calculated by using below formula:

VAT on mileage = (Advisory fuel rate x business miles claimed)/6

The above equation is divided by 6, as the advisory fuel rates is given as gross and already includes VAT at 20% (i.e. 20/120=6)

Let’s consider an example - If you run your own car (1.6 litre petrol engine) for 1,600 miles for business purpose in February-2020, then you can claim VAT on fuel of £37.33. This is calculated as follows:

Advisory fuel rate for a petrol car with 1600 cc engine = 14 pence per mile.

Hence, VAT on Mileage = (14p x 1600 miles)/6 = £224/6 = £37.33

VAT on mileage = £37.33

Your business will be treated as having made Vatable purchases of fuel of £224 (inclusive of VAT) and your VAT bill is reduced by £37.33, as it will count towards input VAT.

Documents to support claiming VAT on mileage

As an employee you always think that “Should I be maintaining fuel receipts, as I’m not claiming for the fuel I purchased, and only claiming mileage allowance?”. The answer is YES, you must keep a record of fuel receipts/documents, if you want to claim the VAT on the mileage expenses. It is usually advisable to have a fuel receipt of at least £10.00 for every 100 miles claimed.

In order to support the calculation of the VAT recovery on mileage, the below information is usually required:

  • Fuel type of the vehicle used
  • Cylinder capacity of the engine
  • Origin of the journey undertaken and the destination
  • Purpose of the trip
  • Mileage travelled for business
  • VAT amount on the fuel receipt related to the claim

The dates specified on the fuel receipts must be the date before the year end date in which you are going to claim. In the event of a VAT inspection/audit, HMRC can trash the claim, if the VAT receipts are not available with you and can levy penalties for incorrect information provided on the returns.

HMRC have discretion to accept a claim, where the evidence is missing and other evidence of the purchase is available (VAT Regulations 1995, s. 29; see HMRC’s VAT Input Manual VIT31200. However, it’s safer and simpler not to rely on this and keep the receipts.

Note that if you are going outside UK on a business trip, then you can’t claim the VAT on the fuel purchased as solely receipts for fuel purchased in the UK, will be used to recover VAT input tax.

For more details on how to claim VAT, please speak to one of our VAT experts on 0330 88 66 86.

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