Relative Accountancy co-founder Richard Simpson says thousands of businesses across the UK could be missing out on significant sums by not reclaiming VAT on mileage.
Can I reclaim VAT on mileage?
Most people don’t realise that there is an element of VAT on mileage that is reclaimable under certain circumstances. Every three months, HMRC publishes the Fuel Advisory Rate, which is used as a reference point for a few different things. And one of those functions that it is used for is to determine the VAT payable on mileage.
How much can I get?
The Rate is updated every three months, although that isn’t to say that it changes every time. Often, the rate will stay the same, and the Rate is simply published to provide the relevant information for the upcoming period. By and large, the mileage rate that people are able to claim against is 45p per mile for the first 10,000 miles, and then it drops to 25p a mile after that.
How is my VAT on mileage rate calculated?
Fuel Advisory Rates are based around the type of fuel that your vehicle takes and the engine size. It isn’t dictated by CO2 emissions, like in other areas of tax. Let’s look at a practical example.
You might have a diesel car that is less than two litres, and let’s say that this gives you a rate of 13p per mile. Now, you are allowed to claim VAT on that 13p a mile, so 1/6th of that 13p can be reclaimed for every mile that is driven and processed as a business expense.
It’s something that most people miss, but it can really add up if you’ve got 10,000 miles on the clock and you’re claiming 1/6th of 13p for every mile. In this example, the amount would add up to more than £200, but the surprising thing is that it isn’t often claimed.
What records do I need to keep for reclaiming VAT on mileage?
There is one small caveat to all of this, and it is a little bit archaic. HMRC insists that in order to claim the VAT on mileage, you need to keep VAT receipts up to the equivalent of the amount that you claim. So, if you reclaim £200 of VAT on mileage in a year, you have to have VAT receipts, where there is £200 worth of VAT on those receipts. You just have to keep them; you don’t have to do anything with them and you don’t have to enter them anywhere. It might be wise to take some photos of them and store them on Dext, DropBox, or somewhere like that, or it might be that you keep them somewhere in a file, but that’s it.
How can Relative Accountancy help?
Relative Accountancy can work with you to help you with the process of reclaiming VAT on mileage. We can work with existing records, and prepare and submit your application, or help you to set up a system that enables you to claim in the future. As you can see from the examples, the amounts available are pretty significant when added up over the course of the year and across thousands of miles.
Relative Accountancy is here to help if you need advice.
Call 01484 441431 or email hello@itsrelative.co.uk.