We are often asked is, can I reclaim VAT on mileage payments?

The answer is yes, but only on the fuel element.

The Mileage Allowance Payments are intended to cover the running expenses of the vehicle such as fuel, insurance, road tax, reduction in value etc.

So how do we know how much of the cost relates to fuel?

Thankfully there are HMRC published advisory fuel rates that are deemed to be the the fuel proportion of a mileage claim, and on which you can reclaim VAT.

An example:

An employee has a car with a 2000cc diesel engine.

The fuel proportion, taken from HMRC published advisory fuel rates is 13p per mile (September 2014)

So, 1/6 (this is the VAT Fraction at 20% VAT) multiplied by the 13p is 2.17 pence per mile. So for every business mile done in that car the company can claim back 2.17p in VAT.

It might not sound a lot but it really does add up quickly.

There is one strange record keeping rule however that you must follow, you must keep VAT receipts that have enough VAT on them to cover the claim.

So for the above example if the mileage claim was for 500 miles in a month.

The VAT reclaimed would be 500 x 2.17p = £10.85.

You should therefore have fuel receipts that total at least £65.10 (54.25 plus 10.85 VAT)

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