How to Claim VAT on Mileage Expenses in the UK
You can claim VAT on mileage from you and your employee’s business travel expenses. This guide will teach you how!
VAT reclaim on mileage expenses is one of the great benefits of not having company cars. As business owner, you are entitled to claiming on your own travel costs. If your employees use their personal cars for business use outside of the common commute, you can reclaim VAT on their mileage too.
Here’s What We’ll Cover:
How Much Can You Reclaim on Mileage Expenses?
How to Calculate VAT Reclaim on Mileage - Example
Reclaiming VAT as an Employer
If your employees use their personal cars for business purposes, they can claim VAT on their mileage expenses. This only works if your employees are funding their own mileage when doing business trips. If you, as the employer, are paying a mileage allowance, you can reclaim VAT expenses directly.
Another note is that the mileage must be for business purposes only. It can’t include:
- Personal journeys
- Daily commutes to work
Mileage and fuel expenses only cover business travel outside of these two categories. A reliable mileage tracker app that you and your employees can use is essential. Our hands-free mileage tracker is so intuitive, it will even calculate tax deductions for you!
The expenses you claim on must come from business travel of actual employees. Freelancers and contractors aren’t included.
As an employer, it’s important to note you can only claim on fuel. The allowance your give your employees for mileage must equal the allowance for fuel.
How Much Can You Reclaim on Mileage Expenses?
The HMRC uses predefined rates for mileage claims. That is 45p per mile, then 2p per mile after that. These values are meant to cover expenses beyond fuel. That could be wear and tear costs like repairs. It could also include fixed costs like insurance and road tax.
Part of the 45/25 pence mileage rate is for the cost of fuel. The fuel portion is what is eligible for VAT reclaim. Remember that you’ll need VAT receipts for fuel to support your business mileage claim.
The amount that is considered deductible is called the Advisory Fuel Rates. The HMRC revises these every quarter. As of September 2021, they are as follows:
|
Fuel Type |
Engine Size |
Advised Rate Per Mile |
|
Petrol |
1400cc or less |
12p |
|
Petrol |
1401cc to 2000cc |
14p |
|
Petrol |
Over 2000cc |
20p |
|
Diesel |
1600cc or less |
10p |
|
Diesel |
1601cc to 2000cc |
12p |
|
Diesel |
Over 2000cc |
15p |
|
LPG |
1400cc or less |
7p |
|
LPG |
1401cc to 2000cc |
8p |
|
LPG |
Over 2000cc |
12p |
You can check the latest rates on the HMRC website.
How to Calculate VAT Reclaim on Mileage - Example
To calculate the amount of VAT you can reclaim on mileage, you need the following details:
- The type of fuel
- The cylinder capacity of the engine
- The destination and origin of the trip
- The purpose of the trip
- The amount of mileage that counts as business travel
- The VAT receipts for the fuel costs related to the journey
So grab your fuel receipts and let's do some maths.
Let’s take an example of an employee with a petrol car. The car is over 1400c but under 2000c. The car has less than 10000 miles.
So of the 45p per mile mileage allowance, 14p is for fuel.
VAT rate is currently 20%. Therefore, we need to calculate 20% of 14p.
14p is 120% (that is 100% plus 20% of VAT).
The VAT element is 14/120*20 = 2.33p
So for every business mile, you can reclaim 2.33p back on VAT.
All you need to do now is multiply 2.33p by the number of miles travelled by that specific employee. Through your accounting system, you can submit a VAT claim to the HMRC on your VAT return.
Et voilá! You have calculated and reclaimed VAT from mileage expenses.
Key Takeaways
Many business owners have no idea that they can reclaim a substantial amount of money on mileage expenses from VAT. But it's a very useful vehicle for tax relief. If you have a reliable accounting system like ours, you can calculate mileage allowance payments and deductions.
For more guides like this one, check out our resource hub!
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