We are frequently asked if VAT can be claimed on the fuel element of mileage allowance when either you or one of your employees are claiming the HMRC-approved mileage allowance.
Well, if you’re an owner-managed business and you, or your employees, claim for business mileage at the HMRC-approved rate, then the good news is that yes if you’re VAT registered and not using the flat rate scheme, you can claim VAT on the fule-element of the mileage allowance.
However, how to do this in practice can be a little complicated but we’ll try to explain it in a simple manner…
HMRC publishes its approved mileage rates here, which can change (although at the time of writing this there’s only been one increase in 14 years).
A business owner or employee who uses their own car for business travel can claim mileage at the relevant amount (currently 45p up to 10,000 miles and 25p thereafter). An employer can choose to pay more than these rates but this would potentially lead to tax and NI liabilities on the difference. If an employer pays less than these amounts, you may be eligible to claim tax relief.
If you have a company car but pay for your own fuel and reclaim mileage from your employer, then HMRC publishes advisory rates for how much you can claim here.
HMRC say that the 45p per mile (or 25p) that you can claim for using your own car, not only covers fuel but also wear and tear and other running costs.
And you can claim VAT on the petrol element of the 45p/25p.
How much is the petrol element? Well, you should use the advisory rates published by HMRC here.
At the time of writing this blog for a petrol car with a 1600cc engine, you can claim 17p of the 45p as the fuel element. Note that the 16p is VAT inclusive so you need to work backwards to calculate the VAT claimable.
So 17p represents 120% (100% plus 20% VAT). So the VAT element is 17/120*20 = 2.83p. So
for every business mile you claim 45p for, you can reclaim 2.83p VAT.
As an example of a real-world claim:
Say you were claiming 100 miles at 45p for your 1600cc petrol car, the total claim would be £45 (100 miles at 45p).
The petrol element would be £17 (100 miles at 17p) and the VAT claimable on the petrol element would be £2.83 (100 miles at 2.83p).
You need to be aware that HMRC will insist that you have enough fuel receipts to cover the amount of the claim.
So if, as in our example, you’re claiming £2.83 worth of VAT, you will need to have fuel receipts amounting to at least £17.