Did you know you can claim back VAT on mileage expenses?
When you drive your own car for business and claim mileage expenses (e.g. 45ppm), your business can claim VAT on the fuel portion of the mileage expense; that is as long as your business is VAT registered, not flat-rate (updated for 1st March 2024 HMRC rate changes).
To recap, most of us, who drive our own vehicles for business, are aware of the mileage rates that can be claimed; either under HMRC Approved Mileage Allowance Payments for employees or HMRC Simplified Expenses for the self-employed. When an employee (or the business owner) uses their own vehicle for business trips they can claim an allowance for their mileage. And the HMRC recommended rate for cars is 45 pence per mile, reducing to 25 pence per mile after 10,000 miles. To find out more check out the infographic in our blog claiming mileage expenses. Or read our guide to claiming mileage allowance for business trips.
Claiming VAT on the fuel portion of the mileage expense
The Approved Mileage Allowance Payment covers the cost of fuel, wear and tear, insurance and vehicle tax incurred by the driver on business trips. It is the VAT on the cost of fuel (or fuel portion) that can be recovered by the business.
So how do we calculate the fuel portion for a particular business trip? The easiest way is to use the Advisory Fuel Rates, published by HMRC.
HMRC Advisory Fuel Rates
The Advisory Fuel Rates are defined by HMRC as the amount that can be paid, tax-free, to company car drivers who pay for their own fuel and use a company car for business journeys. HMRC allows the Advisory Fuel Rates to be used to calculate the fuel portion of the mileage claim.
The rate depends on the type of fuel (Petrol, Diesel or LPG) and the size of the engine, for your car, van or motorbike. For hybrid cars, use the relevant fuel type.
Advisory Fuel Rates – from 1st March 2024
| Engine Size | Petrol – pence per mile | LPG – pence per mile |
|---|---|---|
| 1400cc or less | 13 pence | 11 pence |
| 1401cc to 2000cc | 15 pence | 13 pence |
| Over 2000cc | 24 pence | 21 pence |
| Engine Size | Diesel – pence per mile |
|---|---|
| 1600cc or less | 12 pence |
| 1601cc to 2000cc | 14 pence |
| Over 2000cc | 19 pence |
NB. The rates are updated quarterly and the rates applying from 1st March 2024 are shown above. ( Here are the Advisory Fuel Rates for earlier periods.)
Advisory Electric Rate
HMRC have published the latest Advisory Electric Rate (AER) for pure electric company cars, and the rate is 9ppm.
How to calculate VAT on mileage
Now we have a way to determine the fuel portion (using the Advisory Fuel Rates), we can calculate the VAT on this fuel portion. This VAT is the amount that we can claim on the mileage expense.
The formula
The formula for calculating the VAT on mileage is:
Fuel portion = advisory fuel rate x business miles claimed
VAT = fuel portion / 6
Hence:
VAT on mileage = (advisory fuel rate x business miles claimed) / 6
(N.B. The fuel portion is divided by 6 as the fuel portion already includes VAT at 20% ie 20 / 120 = 6).
Examples
Example 1
If you drive 50 miles a day on business, it is roughly 3,000 miles a quarter. If your car has a 2.5 litre petrol engine, then you can claim VAT on fuel of £120 per quarter.
Assumptions
- The Advisory Fuel Rate for this quarter and this car (2.5 litre petrol engine) is 24 pence per mile
- The mileage is 3,000 miles
Calculations
- Fuel portion of mileage claim = 24p x 3,000 miles = £720
- The VAT on mileage is £720 / 6 = £120
Your business is treated as having made VATable purchases of fuel of £720 (inclusive of VAT) and your VAT bill for the quarter is reduced by £120.
N.B. Fuel receipts need to be kept for the value of £720.
Example 2
If you drive your own car (1.8 litre diesel engine) 1,500 miles for business in January 2024, then you can claim VAT on fuel of £37.50.
Assumptions
- The Advisory Fuel Rate for January 2024 is 15 pence per mile applying to diesel cars falling in the 1601cc to 2000cc band.
- The mileage is 1,500 miles
Calculations
- Fuel portion of mileage claim = 15p x 1500 miles = £225
- The VAT on mileage is £225 / 6 = £37.50
Your business is treated as having made VATable purchases of fuel of £225 (inclusive of VAT) and your VAT bill is reduced by £37.50.
N.B. Fuel receipts need to be kept for the value of £225.
Can employers claim VAT on mileage for employees?
If you employ staff who drive their own vehicle for business trips, then you can claim the VAT on their fuel too. There are, however, some caveats:
- The drivers must be employed by the company, i.e. not contract staff. This is because contract staff are employed by a different business; your own business cannot claim the VAT input tax on behalf of a different business.
- You must be paying your staff a mileage allowance for driving their own vehicle for business. The mileage allowance must cover the fuel portion of the mileage claim.
Fuel receipts to support claiming VAT on mileage
The question often arises “Do I need to keep fuel receipts, as I’m not claiming for the fuel I purchased?“. The answer is yes, you must keep the fuel receipts if you want to claim the VAT on the mileage expenses.
- In Example 1 above, you need fuel receipts of £720 (at least) to cover the VAT claim of £120.
- In Example 2 above, you need fuel receipts of £225 (at least) to cover the VAT claim of £37.50.
The dates on the fuel receipts must be before the end date of the claim.
Note that if you drive outside the UK on business, then you can’t claim the VAT on the fuel purchased outside the UK. Only receipts for fuel purchased in the UK can be used to reclaim VAT input tax. For example, if you drive from Belfast to Dublin on business you can’t claim the VAT on the fuel purchased in the Republic of Ireland. Fuel receipts from other countries in the EU cannot be used. Likewise, there is no VAT on fuel in Guernsey, so fuel receipts purchased in Guernsey cannot be used.
Does it matter if we don’t have the fuel receipts?
Yes it does – a claim should only be made if supported by receipts.
In the event of a VAT inspection, HMRC can refuse the claim if the VAT receipts are missing. And HMRC can levy penalties for incorrect 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.
HMRC documents
Sometimes the HMRC documents can seem confusing, for instance the document When you can use Advisory Fuel Rates states that Advisory Fuel Rates can only be used for company cars or when employees repay the cost of fuel. We’ve pointed out to HMRC that this appears to imply, the Advisory Fuel Rates cannot be used alongside Approved Mileage Rates for calculating the VAT on mileage expenses. HMRC explained that although the Advisory Fuel Rates are only published for the purposes of mileage in company cars, the HMRC’s document VIT55400 offers several options for the treatment of road fuel costs, one of which is a simplified treatment of road fuel costs for businesses. This simplification means HMRC will accept the use of the HMRC published advisory rates (or equivalent data from the AA and RAC), to determine fuel costs even though the Advisory Fuel Rates are not explicitly published for this purpose.
Summary
If you are a VAT registered business paying mileage expense to you or your staff, you can claim back VAT on the fuel-only portion of the mileage expense – but remember to collect VAT receipts for fuel purchased to back up the claim.
Thanks
Thanks go to Sarah Bradford BA(Hons) ACA CTA director of Writetax Ltd and the HMRC VAT Written Enquiries Team for their advice.
Tripcatcher calculates the VAT on mileage for you, and also calculates the value of fuel receipts required. There is a 14 day free trial so why not sign up for a Tripcatcher account now.
