Can I Claim VAT on Mileage?

If you are not claiming VAT on mileage payments, you need to double-check your processes. If you are not claiming business mileage at all – shame on you! 

By not doing so, you are leaving money on the table. Your money, extra profit in the business that you could be paying to yourself. 

Firstly, reclaiming mileage is tax-free money in your pocket. Secondly, the cost would reduce your business tax bill and thirdly you could be reclaiming the VAT on the fuel element of the mileage payment. 

It’s your money – you can claim VAT on mileage!

We are sure you have better things to do than work through the fine detail of whether you can claim VAT on mileage.  So, if you have ever been left scratching your head wondering ‘do I claim VAT on milage?’ here’s a simple answer: 

As a VAT-registered business, you are entitled to claim VAT on the fuel element of mileage payments made to employees for business trips. How much VAT you can claim depends on the fuel type and engine size of the vehicle. You will need fuel VAT receipts covering the value of the VAT reclaim as evidence.

We are not going into lots of detail as to how much the mileage payment should be in this article. If you would like to find out more about how much an employer should pay for mileage you can check out our ‘does my employer have to pay me mileage?’

Can I reclaim VAT on mileage?

Yes. If you are a VAT-registered business, you can reclaim the VAT element of the mileage payment made to employees. There are specific rules that need to adhere to for the claim backed up by corresponding paperwork.

Don’t worry as we go through this in more detail below. By the time you have finished this article, you will know what you can claim, how to calculate the claim and what paperwork is required to back up claiming VAT on mileage.

How do you calculate VAT on mileage?

Input tax is calculated by multiplying the fuel element of the mileage allowance by the VAT fraction (VAT rate divided by 100 + VAT rate). The allowance paid to employees must be based on mileage done. Business records must be kept backing this up. 

The business must retain records for each employee claiming a mileage allowance to show:

• the mileage travelled
• whether the journey is both business and private
• the cylinder capacity of the vehicle
• the rate of mileage allowance; and
• the amount of input tax claimed

An example showing how to reclaim VAT on 45p mileage     

An employee travels 1,000 miles in their car, which is a 2000cc petrol for business trips. They claim at the £0.45 per mile approved mileage rate.

The business would therefore have a cost of £450 (1000 x £0.45) to make to the employee.

Based on the advisory fuel rate of £0.18 per mile the business would reclaim VAT on £180 (1000 x £0.18) of the total £450 cost. That would mean £30 (£180/6) of VAT to be reclaimed by the business.

HMRC officers may check what rates employers have used to calculate claimable input tax on the fuel element of mileage allowances paid to their employees. 

Current rates as published by motoring associations such as AA or RAC are generally acceptable. HMRC will also accept HMRC’s own advisory rates which are published twice a year and can be found at Company Cars – advisory fuel rates.

How to claim VAT on mileage expenses?

If employees are reimbursed for road fuel, they have bought for business purposes the VAT charged can be treated as input tax. This can only be done if the business can show that the employee has been reimbursed either:

• for their actual expenditure; or
• by way of a mileage allowance.

The business must also obtain and retain invoices/receipts for all fuel purchased by its employees. This means either full VAT invoices or less detailed invoices/receipts. 

Input tax can only be claimed on the cost of fuel for business use in making taxable supplies, so any invoices need only cover this amount.

HMRC accepts that the amount of the invoice/receipt in many cases will not match the input tax claim in respect of business fuel in any one claim period, particularly where fuel is purchased towards the end of the period.

Are you now wondering whether you need to keep receipts for business expenses?

Clearly, a claim cannot be supported by a VAT invoice/receipt that is dated after the dates covered by the claim. 

This means, in practice, that it may be advisable for employers to arrange for their employees who use, or may use, their cars for business purposes to retain all fuel invoices/receipts. 

This will ensure that at the end of the claim period the value of business fuel is covered by an invoice/receipt.

Is the 45p mileage allowance taxable?

In 2011, the mileage allowance rate changed to 45p per mile. If employees are paid mileage allowance above a certain amount it must be reported to HMRC and pay tax. 

Mileage Allowance Payments (MAPs) are what you pay your employee for using their own vehicle for business journeys.

You’re allowed to pay your employee a certain amount of MAPs each year without having to report them to HMRC. This is called an ‘approved amount’.         

Does the employer have to pay at this rate if the approved amount is set by HMRC? Check out our handy guide ‘Does an employer have to pay 45p per mile?’

To calculate the ‘approved amount’, multiply your employee’s business travel miles for the year by the rate per mile for their vehicle.

	First 10,000 miles	Above 10,000 miles
Cars and vans	45p	25p
Motorcycles	24p	24p
Bikes	20p	20p

Example

Your employee travels 12,000 business miles in their car – the approved amount for the year would be £5,000 (10,000 x 45p plus 2,000 x 25p).

Anything above the ‘approved amount’

You must:

• report on form P11D
• add anything above the ‘approved amount’ to the employee’s pay, and deduct and pay tax as normal

Anything below the ‘approved amount’

You will not have to report to HMRC or pay tax, but:

• your employee will be able to get tax relief (called Mileage Allowance Relief, or MAR) on the unused balance of the approved amount
• you can make separate optional reports to HMRC of any such unused balances under a scheme called the Mileage Allowance Relief Optional Reporting Scheme (MARORS) – contact HMRC to join the scheme

FAQs on claiming VAT on mileage

Can I claim business mileage when using a company car?

Yes, if the employer is not paying for the fuel in the company car.

If you are provided with a company car the employer may also provide you with fuel for the company car. Any private usage of the vehicle and fuel would create a benefit in kind, and you will be liable to pay tax on this benefit.

Handy Hint: Read our guide to tax on company cars, and the one exception where you don’t have to pay any.

If the employer does not provide you with fuel for the company car and you complete business trips in the vehicle, then you would be entitled to reclaim business mileage. 

You will not be able to claim mileage at the Mileage Allowance Payments rate as that is for when you use your vehicle. Instead, you would follow the guidelines for Advisory Fuel Rates.

These rates only apply to employees using a company car.

Use the rates when you either:

• reimburse employees for business travel in their company cars
• need employees to repay the cost of fuel used for private travel (to avoid a benefit in kind tax charge)

You must not use these rates in any other circumstances.

If the mileage rate paid is no higher than the advisory fuel rates for the engine size and fuel type of the company car, there will be no taxable profit and no Class 1A National Insurance to pay.

HMRC review the rates quarterly on:

• 1 March
• 1 June
• 1 September
• 1 December

Check regularly to make sure you are applying the correct Advisory Fuel Rate, especially now with prices at the pump being so volatile.

Petrol – fuel advisory rates

Engine size (cc)	Mean MPG	Fuel price (per litre)	Fuel price (per gallon)	Rate per mile	Advisory fuel rate
Up to 1400	51.9	174.2 pence	791.9 pence	15.3 pence	15 pence
1401 to 2000	44.1	174.2 pence	791.9 pence	18.0 pence	18 pence
Over 2000	28.8	174.2 pence	791.9 pence	27.5 pence	27 pence

Diesel – fuel advisory rates

Engine size (cc)	Mean MPG	Fuel price (per litre)	Fuel price (per gallon)	Rate per mile	Advisory fuel rate
Up to 1600	60.7	185.2 pence	841.8 pence	13.9 pence	14 pence
1601 to 2000	49.8	185.2 pence	841.8 pence	16.9 pence	17 pence
Over 2000	38.8	185.2 pence	841.8 pence	21.7 pence	22 pence

The advisory electricity rate for fully electric cars is 5 pence per mile.

Hybrid cars are treated as either petrol or diesel cars for advisory fuel rates.

Can my employer pay more than the approved mileage payment?

Yes, your employer can pay you more than 45p for mileage allowance.

If you have a generous employer and they would like to pay you above the 45p approved mileage payment, they are perfectly entitled to do so.

If an employer makes payments above Mileage Allowance Payment approved amount, you’ll have to report them to HMRC and deduct and pay tax.

You must:

• report on form P11D
• add anything above the ‘approved amount’ to the employee’s pay, and deduct and pay tax as normal

Example

Your employee travels 12,000 business miles in their car – the approved amount for the year would be £5,000 (10,000 x 45p plus 2,000 x 25p).

If you paid them 50p per mile or £6,000 then the additional £1,000 would be taxable.

Any amount paid above the 45p approved mileage payment would be taxable. This would be declared on the P11D submission, and your tax code adjusted accordingly. As this event only happens once a year, it means your tax code for the tax year code moves around depending on your mileage payments received in the previous tax year.

Can I claim tax relief on business mileage?

You may be able to claim tax relief if you use cars, vans, motorcycles, or bicycles for work.

This does not include travelling to and from your work unless it’s a temporary place of work.

How much you can claim depends on whether you’re using:

• a vehicle that you’ve bought or leased with your own money
• a vehicle owned or leased by your employer (a company vehicle)

Using your vehicle for work

If you use your own vehicle or vehicles for work, you may be able to claim tax relief on the approved mileage rate. This covers the cost of owning and running your vehicle. You cannot claim separately for things like:

• fuel
• electricity
• road tax
• MOTs
• repairs

To work out how much you can claim for each tax year you’ll need to:

• keep records of the dates and mileage of your work journeys
• add up the mileage for each vehicle type you’ve used for work
• take away any amount your employer pays you towards your costs, (sometimes called a ‘mileage allowance’)

Using a company car

You can claim tax relief on the money you’ve spent on fuel and electricity, for business trips in your company car. Keep records to show the actual cost of the fuel. 

If your employer reimburses some of the money, you can claim relief on the difference. This is likely to be based on the fuel advisory rates mentioned above.

Does business mileage include VAT?

As a VAT registered business, you can reclaim VAT on your employees’ mileage claim BUT only for the proportion that relates to fuel. You can claim VAT on the fuel-only portion element of the mileage claim.

The simplest way to calculate this is to apply VAT to the advisory fuel rates supplied above based on the fuel type and engine size of the car. You cannot claim VAT on the remaining balance which covers the cost of the employee’s car costs.

Example

An employee travels 1,000 miles in their car, which is a 2000cc petrol for business trips. They claim at the £0.45 per mile approved mileage rate.

The business would therefore have a cost of £450 (1000 x £0.45) to make to the employee.

Based on the advisory fuel rate of £0.18 per mile the business would reclaim VAT on £180 (1000 x £0.18) of the total £450 cost. That would mean £30 (£180/6) of VAT to be reclaimed by the business.

When did the mileage rate change to 45p?

The mileage allowance increased to 45 pence on the 6th of April 2011, coming into effect for the tax year 2011/2012. The 45p mile was introduced as part of The Approved Mileage Allowance Payments (Rates) Regulations 2011.

If you would like to find out more about the mileage rate change and whether it will increase you can read more in our article about the mileage rate change to 45p.

Conclusion

Wow. Who would have thought wanting to know whether you can claim back VAT on mileage allowance would be such a loaded question?

So much for a business owner to consider and get right. The key thing is to consider all your options and the different variables when thinking about paying business mileage.

Who owns the vehicle, what the correct element of fuel is and whether VAT is reclaimable. There is potentially a lot of cash being left on the table if you are not currently claiming VAT on mileage payments. 

You work hard to make a profit so make sure you claim everything you are entitled to.

Make sure you document the company policy and procedures and that they are adhered to. You need to make sure that you are making claims based on solid foundations. 

Everyone in the business should know what the company rules are around company car usage and especially the rates at which business mileage will be reimbursed.

This allows both you and the company to make accurate claims and if employees are entitled to claim tax relief on any business mileage, they are also able to do so.

Finally, don’t forget that whilst this might feel like a faff once you have the right process in place you are winning on three fronts, tax-free cash back in your pocket, reduced business tax bills and reclaimed VAT.

Just make sure that you keep a proper record including receipts!

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