Understand your options when it comes to claiming VAT on business mileage, how to calculate how much you can claim and VAT records you need to keep.
Using the fuel scale charge is one way a business can claim back VAT on fuel. Find out about the other options available in this guide.
Table of contents
Updated 17 August 2021
1. Who Can Claim VAT on Mileage
Only VAT registered businesses can claim VAT back on expenses, which includes business mileage expenses. Businesses need to register for VAT on their taxable business turnover exceeds the VAT threshold, currently £85,000 As with any other allowable business expense, you can only claim tax relief and VAT back on business expenses, not personal ones.
Partially exempt businesses can only claim for a portion of VAT back on their input tax on expenses relating to VAT taxable sales
2. How to Claim VAT on Mileage Claims
When it comes to claiming VAT on mileage, you need to calculate your claim using what is known as the advisory fuel rates not mileage allowance rates.
2.1 Advisory Fuel Rates v Mileage Allowance Rates
The advisory fuel rates are a rate set per mile by HMRC that is lower than the mileage allowance rates because they relate to fuel only. Mileage allowance rate (typically known as the 45p per mile rate) is set at a higher rate per mile to take into account the cost of wear and tear on a vehicle as well as fuel, MOT and servicing. When it comes to calculating VAT on mileage, we need to use the advisory fuel rates so that the rate is stripped back to just the fuel element.
Here are the current advisory fuel rates:
|Engine size||Petrol - amount per mile||LPG - amount per mile|
|1400cc or less||11p (previously 10p)||8p (previously 7p)|
|1401cc to 2000cc||13p (previously 11p)||9p (previously 8p)|
|Over 2000cc||19p (previously 17p)||14p (previously 12p)|
|Engine size||Diesel - amount per mile|
|1600cc or less||9p (previously 8p)|
|1601cc to 2000cc||11p (previously 10p)|
|Over 2000cc||13p (previously 12p)|
The advisory electricity rate for fully electric cars is 4 pence per mile. Hybrid cars are treated as either petrol or diesel cars.
3. How to Calculate VAT on Fuel
Here’s how to calculate VAT on business mileage, along with an example. There are 5 steps you need to take:
How to Calculate VAT on Mileage Claims
- Calculate the Number of Miles Travelled
Work out how many business miles have been travelled. Remember home to office doesn’t not count as business travel.
- Establish the Type of Car Used
Find out exactly which car was used so that you can find out what engine size it has.
- Identify the Applicable VAT Advisory Fuel Rate
Look up the HMRC advisory fuel rate for the vehicle you want to claim back VAT on.
- 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.
- Calculate VAT included in the Mileage Claim
Multiply the gross fuel cost by 1/6. The gross less the VAT is the net cost of fuel at the standard rate of VAT.
3.1 Example of Claiming VAT Back on Fuel
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.
- Total miles travelled is 100 miles
- The car used was a 1400cc petrol car
- The applicable advisory fuel rate (not mileage allowance rate) for the vehicle used is 11p per mile
- Gross fuel cost is 11p x 100 miles = £11
- 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)
4. VAT Record-Keeping for Fuel Receipts
As with any other business expense, you are required by HMRC to keep appropriate records and receipts to support any VAT being claimed back on expenses. When it comes to claiming back VAT on fuel, it can be a bit tricky. So you’ll need to make sure when you are claiming VAT on mileage that there is an accompanying VAT receipt for the fuel purchased to fill up their vehicle around the time of the business trip taken.