Claiming VAT on the 45p mileage allowance fuel element

September 21, 2023

It can be done; we get asked a lot about the VAT on mileage claims when the LTD company is VAT registered when either you or your employees are claiming the HMRC mileage allowance. Which can be found here

If you’re company is VAT registered and not using the flat rate scheme, you can claim VAT on the mileage allowance.

It’s a little complicated to calculate, HMRC don’t like straight forwardness, however we hope this helps you.

Even though the rates have only changed once in the last few years (they are still stuck in the ages when fuel was less than £1 per litre).

An employee (or business owner) who uses his or her own car for business travel can claim mileage at the relevant amount (for a car it’s currently 45p up to 10,000 miles and 25p thereafter).

(By the way, if your employer pays you more than these rates then you’ll get taxed on the difference and if your employer pays less than 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 publish Advisory rates  for how much you can claim.​

Now here’s the clever bit.

HMRC say that the 45p per mile (or 25p) that you can claim for using your own car, not only ​covers petrol but it also covers wear and tear and other running costs.  (This reduces at 10,000 miles because HMRC say that you’ve had enough contribution to the running costs to compensate you for using the car for business! )

And you can claim VAT on the petrol element of the 45p/25p.

Using the Advisory rates you can check engine size and advised rate to claim.

For example a petrol car, which is 1600cc, then you can claim 16p of the 45p as fuel and this is the basis to find the VAT element.

​The 16p is VAT inclusive so you need to work backwards to find out the VAT claimable. 

The 16p represents 120% (100% plus 20% VAT).  The VAT element is 16/120×20 = 2.67p.  For every business mile you claim 45p for, you can reclaim 2.67p VAT.

100 milesClaiming £0.45 per mile
100 miles= £45 claim
Petrol element of 100 miles£0.16 x 100miles = £16
VAT allowed to be claimed on 100 miles£2.67 VAT CLAIM
HMRC state you must cover the £16 with actual fuel receipts to claim this VAT backMust be a valid business journey to make this claim in the first place and have the records to support this if HMRC come knocking.

We advise our clients to use Xero

If you’re a sole trader or in a partnership, whether you should be using the 45p per mile allowance or claiming for your car costs totally differently. Come and ask about this. Always happy to help.