If you are a company director claiming mileage or paying mileage to your employees for using their own vehicles for work purposes, you are entitled to claim VAT on these expenses.
Many are unaware of this and whilst the amounts involved initially appear to be quite small, over time these can add up!
If you use your own car for business purposes you can claim mileage of 45 pence per mile for the first 10,000 miles in a tax year. For any miles over 10,000, the amount allowed to be claimed by HMRC is 25 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 being on the flat-rate scheme.
Mileage Allowance Payments effectively reimburse you for different aspects of running your vehicle such as the cost of fuel, wear and tear, insurance and road tax incurred while performing business trips.
VAT isn’t reclaimable on the whole mileage amount claimed, instead it is only reclaimable on the fuel element of the mileage.
This fuel element is determined by HMRC and it is called the advisory fuel rates.
The rates specified depend upon the type of fuel (Diesel, petrol or LPG) you are using for your vehicle. It is not applicable for any business trips which are outside the outside UK.
You must keep a record of the fuel receipts/documents in order to claim the VAT on your mileage expenses. If these are not available HMRC may not allow the VAT reclaim and may request amounts previously claimed are paid back to them.
For the calculation of the fuel element of a mileage payment for a business trip in a personal vehicle, we first need to refer to the latest HMRC published Advisory Fuel Rates.
These rates are calculated based on the current fuel prices and average mile per gallon depending on the engine size of your vehicle, according to HMRC.
The rate varies based on the type of fuel (petrol, diesel or LPG) and engine size for your car, van or motorbike.
HMRC’s advisory mileage rate for fully electric cars is 4 pence per mile. This is the total amount you can claim for a business trip in an electric car, so for every 100 miles travelled, your company can reimburse you £4.
You will probably be charged VAT when recharging an electric car through public charging points, this can then be reclaimed by your business.
The VAT you can claim on mileage would be calculated using the following formula:
VAT on mileage = (Advisory fuel rate x business miles claimed)/6
The above equation is divided by 6, as the advisory fuel rate is given as gross and already includes VAT at 20% (i.e. 20/120=6)
You have used your own personal vehicle, a 1.6-litre petrol engine car for 1,600 miles for business purposes.
You are able to claim VAT on this mileage of £34.67. This is calculated as follows:
The advisory fuel rate for a petrol car with a 1600 cc engine is 13 pence per mile.
Consequently, the VAT claimable on this mileage is (13p x 1600 miles)/6 = £208/6 = £34.67
When claiming mileage allowance from your company you should still keep fuel receipts to support your claims.
When claiming 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 the mileage, the below information is usually required:
You may have mileage going back to earlier periods where VAT wasn’t claimed. Fortunately, you are able to go back and reclaim any amounts not previously claimed in the last 4 years.
We recently made such a claim for a client which allowed them to pay for themselves a holiday with the amount reclaimed from HMRC!
If you would like any further guidance or have any questions on the above, please contact us.