Mileage Expenses and Claiming VAT on Mileage
This guide is for any business owner that uses their personal car, or reimburses their employees, for business travel.
We'll explain what you can claim as a business expense and also what you can claim back in VAT if you are VAT registered.
Check out our guide to travel expenses to find out what qualifies as business travel.
Snapshot: Mileage Claim
For every business mile in a personal car you can claim 45p per mile for the first 10,000 miles and 25p per mile above this.
Here's how it looks for vans and bicycles:
[insert mileage table]
Snapshot: VAT Claim on Mileage
You can also claim VAT at approximately 2p-5p for every business mile undertaken in a personal vehicle.
[insert mileage VAT table]
You cannot claim the cost of petrol used in a personal car. This is because you cannot separate business-fuel from personal-fuel. This is a common mistake.
The 45p mileage allowance is calculated to cover all vehicle costs like fuel, repairs, MOTs and all other running costs. You should not claim any of these costs through your business. Instead you should claim the approved mileage rate above.
Since the mileage allowance includes fuel - and because fuel is subject to VAT - you are allowed to claim VAT that is built into the mileage allowance.
Example Calculations
Mileage on Electric Vehicles
Evidence to Support a Claim
Small Print
Claim limit (4 years)
Cannot claim VAT on overseas travel
VAT on employee mileage (only if you pay mileage)
Understanding Mileage Allowance
1.1 The Basics
When you or your employees use personal cars for business-related travel, you're entitled to claim a mileage allowance. This allowance, set by HMRC, is 45 pence per mile for the first 10,000 miles in a tax year and 25 pence per mile for anything above that.
The mileage allowance isn't just about fuel costs. It's a comprehensive figure that factors in various aspects of vehicle operation, including wear and tear, insurance, and road tax.
1.2 Claiming VAT on Mileage
You might be wondering where VAT comes into the picture. The answer lies in the fuel portion of the mileage allowance. If your business is VAT registered (and not on the flat-rate scheme), you're eligible to claim VAT on this portion. However, it's important to note that you can't claim VAT on the entire mileage amount—only the fuel element.
Deciphering Advisory Fuel Rates
The fuel element of your mileage, for the purpose of VAT claims, is determined by what HMRC calls the advisory fuel rates. These rates are based on the current fuel prices and average miles per gallon, depending on your vehicle's engine size. They also vary based on the type of fuel your vehicle uses—be it petrol, diesel, or LPG.
For example, if you have a petrol car with a 1600 cc engine, the advisory fuel rate currently stands at 13 pence per mile.
You can refer to the latest HMRC published Advisory Fuel Rates for an accurate breakdown.
Considering Electric Cars
Electric cars present a slightly different scenario. HMRC's advisory mileage rate for fully electric cars is 4 pence per mile. This means you can claim £4 for every 100 miles travelled on business in an electric car. As for the VAT when recharging an electric car at public charging points, it's reclaimable by your business.
Calculating VAT on Mileage
With the advisory fuel rates in hand, you can calculate the VAT you can claim on mileage. Here's the formula:
VAT on mileage = (Advisory fuel rate x business miles claimed)/6
The reason for dividing by 6 is that the advisory fuel rate is given as gross and already includes VAT at 20% (i.e., 20/120=6).
4.1 An Example
Let's say you've used your personal vehicle, a 1.6-litre petrol engine car, for 1,600 miles of business travel. The advisory fuel rate for such a car is 13 pence per mile. The VAT claimable on this mileage, therefore, would be (13p x 1600 miles)/6 = £208/6 = £34.67.
Supporting Your VAT Claim on Mileage
When claiming mileage allowance from your company, it's crucial to keep fuel receipts to back up your claims. For VAT on mileage expenses, it's generally advisable to have a fuel receipt of at least £10.00 for every 100 miles claimed.
To support the calculation of the VAT on mileage, you typically need to provide the following information:
Fuel type of the vehicle used
The cylinder capacity of the engine of the vehicle
The origin of the journey undertaken and the destination
The purpose of the trip
The number of miles travelled for business
The VAT amount on the fuel receipt related to the claim
If you don't have the fuel receipts or documents, HMRC may not allow the VAT reclaim and may request that amounts previously claimed are paid back to them.
Retrospective VAT Claims
What about the mileage from previous periods where you didn't claim VAT? The good news is that you can go back and reclaim any amounts not previously claimed in the last 4 years. This could lead to a substantial amount of savings for your business.
VAT for Employee Mileage
If you have employees who use their own vehicles for business purposes, you can claim VAT on their mileage too. However, there are a few caveats to keep in mind. The drivers must be employed by your company (i.e., not contract staff), and you must pay them a mileage allowance for driving their own vehicle for business.
The Importance of Keeping Records
HMRC requires you to keep enough petrol receipts to cover the amount of the claim. For example, if you're claiming £2.67 worth of VAT, you need to have petrol receipts amounting to £16.
In the event of a VAT inspection, HMRC can refuse the claim if the VAT receipts are missing and may also levy penalties for incorrect returns.
Special Cases: Outside UK and Electric Cars
Keep in mind that the advisory fuel rates and VAT reclaim are not applicable for business trips outside the UK. Similarly, for electric cars, the advisory mileage rate is slightly different, and you can reclaim VAT when recharging at public charging points.
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