MilesheetVAT and mileage: the bit most businesses miss
If you are VAT registered and paying mileage, there is input tax buried in the fuel element — but only if you keep the receipts.
A VAT-registered business paying employees approved mileage rates can usually reclaim the VAT on the fuel element of those payments. A surprising number do not, because the mechanism is not obvious and the paperwork requirement is easy to fail.
What you can reclaim
Not the VAT on 45p. The 45p covers the whole cost of running the car — insurance, servicing, depreciation — and most of that carries no reclaimable VAT.
What you can reclaim is the VAT contained in the fuel part of the mileage payment. HMRC's Advisory Fuel Rates are the accepted way of identifying how much of the payment is fuel.
So the calculation runs: business miles × the relevant advisory fuel rate = the fuel element; the VAT fraction of that is what you reclaim.
The calculation, worked
10,000 business miles, employees reimbursed at the approved 45p, with an advisory fuel rate of 14p a mile (illustrative — check the current table):
| Step | Figure |
|---|---|
| Mileage paid to employees | 10,000 × 45p = £4,500 |
| Fuel element (advisory rate) | 10,000 × 14p = £1,400 |
| VAT fraction of the fuel element (1/6 at 20%) | £233.33 |
| Fuel receipts you must hold | At least £1,400 worth |
The last row is the condition that defeats most businesses: the reclaim is only supportable if the purchases can be evidenced.
The condition that catches people
You must hold VAT receipts for fuel to support the claim.
That is the part businesses fail. The employee bought the fuel, kept no receipt, and the business has a mileage claim it cannot support with purchase evidence. HMRC's position is that you need enough fuel receipts to cover the VAT being reclaimed — not receipt-by-receipt matching to journeys, but enough purchases to show the fuel was actually bought.
The practical answer is to ask staff to keep fuel receipts even though they are claiming mileage rather than fuel. It feels redundant to them and it is the difference between reclaiming and not.
The rates move quarterly
Advisory Fuel Rates are revised every three months. A calculation using last year's figures is wrong, and consistently wrong in a direction someone will eventually notice.
Build the current rate into whatever produces the claim rather than remembering to update it.
Scale charges, briefly
If the business pays for private fuel as well, there is a separate mechanism — the road fuel scale charge — which lets you reclaim input tax on all fuel and account for output tax on the private element based on the vehicle's CO2. Whether that is better than simply not reclaiming on private fuel depends on the ratio of business to private mileage.
Either way, the number you need first is the split between business and private miles — which is a record-keeping question long before it is a VAT one.
Sources
- HMRC — Advisory fuel rates
- HMRC — Travel, mileage and fuel rates and allowances
- HMRC — Business travel mileage for employees' own vehicles
- HMRC — Self Assessment: keeping your records
General information, not tax or VAT advice. VAT on motoring is detailed and the treatment depends on your business: take advice before reclaiming.