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Exploring Your Options for Claiming VAT on Business Mileage: Calculation Methods and Record-Keeping Requirements

Businesses can reclaim VAT on fuel costs through various methods. This guide will walk you through how to calculate your VAT claims, understand the required VAT records, and explore the available options, including the fuel scale charge.

Table of Contents:

  1. Who Can Claim VAT on Mileage

  2. How to Claim VAT on Mileage 2.1. Advisory Fuel Rates vs. Mileage Allowance Rates

  3. How to Calculate VAT on Fuel 3.1. Example of VAT Claim on Fuel

  4. VAT Record-Keeping for Fuel Receipts

Last Updated: 17 August 2021

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1. Who Can Claim VAT on Mileage

Only VAT-registered businesses are eligible to reclaim VAT on expenses, including business mileage. To be VAT-registered, a business must have taxable turnover exceeding the current VAT threshold of £85,000. Remember, VAT relief is only applicable to business expenses, not personal ones. Partially exempt businesses can only reclaim a portion of VAT on expenses related to VAT-taxable sales.

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2. How to Claim VAT on Mileage

To claim VAT on mileage, you need to use the advisory fuel rates instead of mileage allowance rates.

2.1 Advisory Fuel Rates vs. Mileage Allowance Rates

The advisory fuel rates, set by HMRC, are specific to fuel costs and are generally lower than mileage allowance rates, which account for fuel, wear and tear, MOT, and servicing. For VAT claims on mileage, use the advisory fuel rates to isolate the fuel cost.

Current advisory fuel rates are:

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The advisory electricity rate for electric cars is 4 pence per mile. Hybrid cars are categorized as either petrol or diesel.

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3. How to Calculate VAT on Fuel

Follow these steps to calculate VAT on business mileage, with an example provided:

Steps for Calculating VAT on Mileage Claims:

  1. Determine Miles Travelled: Calculate the business miles traveled, excluding personal journeys like home-to-office commutes.

  2. Identify Vehicle Type: Confirm the type of car and its engine size.

  3. Find the Advisory Fuel Rate: Check the HMRC advisory fuel rate for the vehicle used.

  4. Calculate Gross Fuel Cost: Multiply the number of miles by the applicable advisory fuel rate.

  5. Compute VAT on Mileage Claim: To find VAT, multiply the gross fuel cost by 1/6. Subtract this VAT amount from the gross cost to determine the net fuel expense.

3.1 Example of Claiming VAT Back on Fuel

Consider an employee who uses their personal 1400cc petrol car for 100 business miles and claims a total mileage amount of £45 using mileage allowance rates.

  • Miles Travelled: 100 miles

  • Vehicle: 1400cc petrol car

  • Advisory Fuel Rate: 11p per mile

  • Gross Fuel Cost: 11p x 100 miles = £11

  • VAT Calculation: £11 x 1/6 = £1.83 (VAT), leaving a net fuel cost of £9.17 (£11 - £1.83).

 

4. VAT Record-Keeping for Fuel Receipts

HMRC requires proper record-keeping for VAT claims on expenses. For fuel, ensure you retain VAT receipts for fuel purchases made around the time of business travel to support your VAT claims.

Related Articles:

  • HMRC Mileage Rates UK (2021/2022)

  • How to Claim VAT Back on Expenses

  • What is VAT and How Does It Work?

How to Claim VAT on Mileage

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