VAT reclaim on business mileage claims

Many (most) employers no longer provide company cars, or fuel to their employees so as to avoid the penal, and ever increasing tax charges on them as benefits in kind.

It has long been custom where employees use their own vehicles for business journeys to reimburse for the business mileage using fixed mileage rates. In fact HMRC annually publish rates which they consider as reasonable to cover costs of fuel and ‘wear and tear’ without an element of benefit, and it is these rates which are most commonly used (cars & vans 45p per mile for the first 10,000 miles annually, 25p per mile thereafter).

However, many VAT registered businesses are missing out on input VAT that can rightly be reclaimed on these expense payments. Provided employees retain VAT receipts for fuel purchased (and these are submitted with the expenses claims) a valid input VAT reclaim can be made against these costs.

To account for recent rises in fuel costs HMRC have recently published new advisory* rates of input VAT that can be used (wef 1 September 2012), as follows:

Engine size                       Petrol             LPG         Diesel
1400cc or less                  £0.025        £0.0167      £0.020
1401cc to 2000cc             £0.030        £0.020        £0.025
Over 2000cc                      £0.043        £0.028        £0.030

*the advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.

Although the VAT rates are not high there is a minimal amount of additional records keeping needed to take advantage of the reclaims with even small numbers of car users rapidly accumulating claims of thousands of pounds per annum.

If you have any questions on how to reclaim input VAT on expenses, or VAT or benefits generally, please contact us

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