Claiming VAT on Mileage

I’ve updated this post on 7th October 2020 for changes in the latest legislation.

This guide covers claiming VAT on mileage claims made using the approved HMRC mileage allowance payments. There are other options when it comes to claim back VAT on fuel and you can find out more in this guide.

Mileage Allowance Payments

When you use your personal vehicle for business reasons you can claim a set rate per mile as a business expense against your taxes. The flat rates are set by HMRC according to the type of vehicle and mileage travelled. Here are the current mileage allowance rates for 2020:

 First 10,000 MilesOver 10,000 Miles
Cars and vans45p25p
Motor cycles24p24p
Bicycles20p20p

If you have employees, you can choose to pay more or less than the HMRC rates. If you pay less, then your employee will be entitled to claim a tax rebate on the difference between what you have paid and the HMRC set rate. If you pay more then the excess becomes a taxable benefit that needs to be included on a P11d form.

Mileage allowance rates are only applicable where a personal vehicle is used for business reasons. The rates are different when claiming mileage for a company car and in these cases, you would need to use the advisory fuel rates.

Advisory Fuel Rates

The advisory fuel rates are lower than the mileage allowance payments above because they are used for company cars, which the business pays for, maintains and taxes.

The mileage allowance payments are higher to reflect the cost of wear and tear when using the car for business, as well as the fuel.

Here are the current advisory fuel rates:

Engine sizePetrol - amount per mileLPG - amount per mile
1400cc or less11 pence7 pence
1401cc to 2000cc14 pence9 pence
Over 2000cc21 pence14 pence
Engine sizeDiesel - amount per mile
1600cc or less10 pence
1601cc to 2000cc12 pence
Over 2000cc14 pence

The advisory electricity rate for fully electric cars is 4 pence per mile. Hybrid cars are treated as either petrol or diesel cars.

How to Claim VAT on Mileage Claims

When it comes to claiming VAT on mileage, you need to calculate your claim using the advisory fuel rates not mileage allowance rates. That’s because these rates related purely to fuel.

Here are the 5 steps you need to take:

Step 1: Calculate the Number of Miles Travelled

The first step is to work out how many business miles have been travelled.

Step 2: Establish the Type of Car Used

You’ll have to find out exactly which car was used so that you can find out what engine size it has.

Step 3: Identify the Applicable VAT Advisory Fuel Rate

Look up the HMRC advisory fuel rate for the vehicle you want to claim back VAT on.

Step 4: Calculate the Gross Fuel Cost

The gross fuel cost for VAT purposes is the number of miles travelled multiplied by the applicable advisory fuel rate.

Step 5: Calculate VAT on the Mileage Claim

Calculate the VAT on mileage claims by multiplying the gross fuel cost by 1/6. The gross less the VAT is the net cost of fuel.

Example

An employee uses their personal car for business travel, driving 100 miles, in a 1400cc petrol car and claim total mileage of £45 using the mileage allowance rates

  1. Total miles travelled is 100 miles
  2. The car used was a 1400cc petrol car
  3. The applicable advisory fuel rate for the vehicle used is 11p per mile
  4. Gross fuel cost is 11p x 100 miles = £11
  5. VAT on the mileage claim is calculated as £1.83 (£11 x 1/6), meaning the net fuel cost is £9.17 (£11 x 100/120)

Record-Keeping

As with any other business expense, you are required to keep appropriate records and receipts to support any VAT being reclaimed. But when it comes to mileage claims, this can be tricky. So just make sure when you are claiming VAT on mileage that there is an accompanying VAT receipt for the fuel they filled up their vehicle with around the time of the business trip.


New Here? Learn how to set up the financial side of your business with these easy to understand guides and resources:

  • Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
  • Tax Records and Bookkeeping – Understand what tax records you’ll need to keep and how to set up your own bookkeeping system;
  • Self Employment Taxes Explained – Learn what taxes you’ll pay, how much and when;
  • VAT Guides – From registration to de-registration, VAT schemes and thresholds, these guides will take you through the basics every UK small business owner needs to know;
  • Invoice Template – Free template and step-by-step guide so you can get paid by your clients.
Anita Forrest
About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.