Something we’re often asked by clients is “Can I claim the VAT back on mileage?”. The answer is yes – but not on all of it.

When a business owner puts petrol in their car they have a few options for deciding how much of it is an allowable business expense. If they drive for a living and the vehicle and petrol is 100% for business then the fuel bill is a business expense and all the VAT can be reclaimed. If it’s a vehicle that’s also used for personal use then things get a little more complicated. Some will opt to keep detailed records of business and personal miles then apportion fuel bills, many more opt to use the HMRC mileage allowance on business miles only and put these through the accounts.

The current mileage allowance for private cars is 45p per mile for the first 10,000 miles in a tax year and 25p per mile for additional business miles driven in the same tax year. These rates are supposed to include an element of reimbursement for the vehicle’s other running costs such as servicing and wear and tear. VAT can only be reclaimed on the fuel portion of the mileage rate.

To calculate the fuel only element you need to refer to the HMRC advisory fuel only rates. These are re–issued each quarter and the latest rates apply from December 2012.

As an example, if client John drives 100 miles in his car, which has a 1.8 litre petrol engine, then the value of the fuel according to the advisory rates is

100 x 18 pence = £18.00

The VAT on this is calculated by multiplying this amount by the VAT rate ÷ (100 + VAT rate) currently 20÷120 (or 1/6)

so the VAT John can reclaim is 18÷6 or £3.00      (or 3p on every business mile)

If you’re putting the miles in to an accounts package then it can help to split the 45p mileage rate in to 18p that includes VAT and 27p that doesn’t.

In order to reclaim the VAT component of the fuel element, John would have to have enough VAT petrol receipts to cover the amount of fuel, so for his 100 mile journey he’d have to have VAT receipts for £18.00 worth of fuel.

10 COMMENTS

  1. I am confused – why have you used 18p for a 1.8 litre petrol engine when the HMRC rates from December 1st 2013 state 16p for a 1401cc to 2000cc vehicle.

    • Hi. This post was written in 2012, when different rates applied. As you say, since December 2013 the rate for this size of engine has changed to 16p so you’ll need to adjust the calculation accordingly. The rates are reviewed every quarter so always worth clicking on the link in the article to get the latest ones.

  2. Sorry, I know it’s an old post but it’s something I’ve been looking into lately.
    Obviously the Vat will be one side of the double entry so I’m presuming that the other side is P&L to credit fuel expense..?

    • Hi Phil, your double entry might be something like this:

      Dr VAT (VAT amount)
      Dr Mileage Expenses (net amount for P&L)
      Cr Director’s expenses account (with combined amount)

      i.e. Director has paid expenses out of their own pocket and expenses owed would accrue in Director’s account until they are paid from the bank account and then you’d have:

      Dr Director’s expenses account
      Cr Bank Current account

      Similarly your VAT would accrue as a liability until that’s also paid from the bank account.

  3. Hi, Thank you. Sorry I didn’t explain that the gross expense had already been posted to mileage expenses without any Vat element so I was thinking of it purely as a Vat reclaim.

  4. Hi Joanne,
    As per HMRC AFR are only apply to employees using a company car. What if they are using their private car for business mileage and claim the standard 45p/25p rate per mile from the company. How do we calculate VAT element of this.

    • Hi Helika. This is really what this article hoped to address. As I understand it, HMRC will allow use of the fuel rate as the proportion of the 45p that is attributable to fuel and therefore eligible for reclaim of VAT.

    • If you get paid a mileage allowance from a company then you can’t reclaim the VAT. Some companies may ask you to get VAT receipts when you get petrol so that they can claim it back. They would be the ones that are VAT registered.

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