CLAIMING BACK VAT ON MILEAGE
You probably know that when an employee uses their own vehicle for work, they can claim back the mileage from their employer or get a tax deduction for the same amount from their employment income.
The HMRC approved mileage rates are as follows:
Cars and vans (any fuel type)
45 pence - up to 10,000 business mileages in the tax year
25 pence - for each business mile over 10,000 in the tax year
24 pence - regardless of number of business miles each tax year
20 pence - regardless of number of business miles each tax year
HMRC’s rate includes an estimate for both the fixed (insurance, road tax etc.) and the variable (wear and tear) costs of running a car. After 10,000 miles, HMRC consider you reimbursed for the fixed costs, hence why there is a lower rate for miles claimed thereafter.
As long as the employer pays at or below the approved amount, they don’t have to report this to HMRC as no tax is due. However, if the employee is paid less than the standard 45p, they will be able to get Mileage Allowance Relief on the difference.
Claiming Back the VAT
An often overlooked point is that the employer can claim back the VAT on the fuel portion of this mileage. As mentioned above, HMRC regard the approved mileage rate as comprising a number of different factors, one of which is fuel.
As VAT is charged on fuel, HMRC allow you to claim back the VAT from the fuel portion of the mileage. To calculate this, they use their advisory fuel rate, which estimates the amount of fuel used per mile based on engine size. Please note the advisory fuel rates are also the rate that should be used to reimburse employees for business travel in their company cars.
The Advisory Fuel Rates from 1 March 2021:
Engine size Petrol – amount per mile
1400cc or less 10p
1401cc to 2000cc 12p
Over 2000cc 18p
Engine size Diesel - amount per mile
1600cc or less 9p
1601cc to 2000cc 11p
Over 2000cc 12p
Hybrid cars are treated as either petrol or diesel cars for advisory fuel rates.
There are also rates for LPG
The advisory electricity rate for fully electric cars is 4 pence per mile. When considering any VAT available for reclaim, this is not only going to be difficult to evidence but also very small in value.
The Advisory Fuel Rates are updated by HMRC on a regular basis and you should, therefore, check for the latest rates published on the HMRC website here.
A list of past rates is also available on the HMRC website.
An employee drives a petrol car with an engine size of 1600cc. In April 2021, they claim 1,000 business miles.
HMRC estimates the cost of the fuel as:
1,000 x 12p = £120 (inc VAT at 20%)
Calculating the VAT portion of this cost is as follows:
£120 ÷ 1.2 = £100
£120 – £100 = £20
In this example, that leaves £20 of VAT paid on fuel that can be claimed back from HMRC on the employer’s VAT return, equivalent to 2p per mile.
An important point, however, is that HMRC may request to see VAT receipts to cover the amount being claimed, so ensure that you have receipts covering the full cost of the fuel – £120 in the above example. If you don’t want to have to keep all these fuel receipts on the off chance that HMRC asks to see them, there are a number of smartphone apps that allow you to keep a record of these.
Please give us a call if you have any questions.