When UK business travellers drive a personal vehicle for business purposes, it not only saves the employer from having to lease a company car, it also provides another significant benefit: VAT reclaim.
If an employee uses a private car for business purposes beyond the standard commute, the employer can make a claim against the approved mileage allowance payment rate to reclaim some money back.
How much can be reclaimed?
The amounts that can claimed will depend on certain factors determined by HMRC. However, with more than half (56%) of company car drivers unaware of HMRC rules on reclaiming business mileage, this blog aims to clarify claim allowances and eligibility.
When an employee uses a private car for business purposes and claims mileage at the pre-defined rates (currently 45p per mile for the first 10,000 miles and 25p per mile thereafter), the mileage relief is granted from a wage tax perspective. If an employer pays more than these amounts, then the additional amount paid will be taxed as income.
If an employee has been given a company car and claims mileage for fuel from the employer (employee pays for his own fuel), then the published HMRC advisory fuel rates reflect the assumed cost of the fuel (incl. VAT) consumed per mile. These rates are reviewed and amended periodically.
From 1st of September 2019, the HMRC Advisory Fuel Rates are:
|Engine size||Petrol – amount per mile||LPG – amount per mile|
|1400cc or less||12 pence||8 pence|
|1401cc to 2000cc||14 pence||10 pence|
|Over 2000cc||21 pence||14 pence|
|Engine size||Diesel – amount per mile|
|1600cc or less||10 pence|
|1601cc to 2000cc||11 pence|
|Over 2000cc||14 pence|
* Hybrid cars are treated as either petrol or diesel cars for this purpose.
** The rate for fully electric cars is 4 pence per mile. The VAT on electricity cannot be recovered as electricity is not considered fuel for car fuel benefit purposes.
HMRC specifies that the 45 pence per mile (or the 25 pence per mile) is meant to cover expenses beyond fuel, such as fixed expenses (insurance, road tax, depreciation) and the variable (wear and tear) costs of running your car. HMRC clarifies that if you claim over 10,000 miles, then you have been reimbursed for the business portion of the fixed costs of owning a car.
The portion of the 45/25 pence mileage rate that is for the fuel element – according to the Advisory Fuel Rates – is eligible for VAT reclaim. Therefore, if an employee pays for fuel for the car (private or business), the VAT on this fuel can be recovered partially.
If you have an employee who has a car with a 1500cc petrol engine, the fuel element of the 45/25 mileage rate is 14 pence per mile (September 2019):
14 pence per mile represents 120% (100% plus 20% VAT)
Therefore 20/120 multiplied by the 14p results in 2.33 pence per mile.
So, for each mile for which fuel is compensated to that employee according to Advisory Rates, your business can claim back 2.33p in VAT.
Keep in mind that the business will need to present VAT receipts – upon request from HMRC – showing sufficient VAT charged on fuel to cover the claim. The receipts linked to a particular claim should not be older than the actual travel date.
In order to calculate the VAT recovery on mileage, the following data is required:
- Fuel type
- Cylinder capacity of the engine
- Origin and destination of the trip
- Purpose of the trip
- Mileage travelled for business
- Respective VAT amount on the fuel receipt related to the claim
- Sufficient total VAT amount on fuel receipts for the period
Seems complicated? It’s actually not.
Travel Expense Management systems often contain a module that allows for recording the required data simply. The data archived together with the fuel receipt image should be sufficient for a business to recover VAT on mileage. If you don’t want the burden of double checking these data entries and uploaded receipts, then VATBox can perform the full audit to ensure you act in full compliance with the law and regulations.
Even if all the data is not fully available in your Travel Expense Management System, VATBox is, in most cases, still able to extract certain parts of the required data from the receipt images and use alternative data sources to complete the picture.
VATBox has successfully digitised the VAT/GST recovery workflow with its cloud-based enterprise recovery solution. Using intelligent automation, VATBox helps large corporations – including Fortune 100 companies – gain actionable insight into their transactional data, empowering finance and tax professionals with full data integrity, tight compliance and maximum savings. Fusing AI and Computer Vision with human expertise, VATBox provides a full spectrum of VAT/GST audit and recovery services. Benchmarks for tax, finance and procurement – aimed to encourage process improvements and compliance – are all collected in one easy-to-use portal with drill-down capabilities into every single transaction, no matter how small. Our expert team is just ‘one-click’ away, ready to help you start making data-driven decisions today.
Contact VATBox at https://vatbox.com/contact-us/ or send our team an email directly at: email@example.com
Senior Tax Manager at VATBox, supporting clients and internal teams on global VAT/GST matters, system maintenance, product development and developing new solutions for digitizing tax regimes. Tomas has a Master’s degree in Economy and is a Certified Tax Advisor. He has been working in international VAT consultancy at Deloitte and also gained in-house Indirect Tax experience at SABMiller and PPG Industries.