Car Mileage & VAT Claims

Employees who use their own car for business purposes can claim mileage. This is currently 45p per mile for the first 10,000 miles and 25p per mile thereafter. If the employer pays more than this, the additional amount will be taxed as income. On the other hand, if the employer pays less than this, the employee gets mileage relief from HMRC.




HMRC states that the 45p per mile or the 25p per mile is to cover not just fuel but other motor expenses including running costs of the car. The portion of the 45p/25p mileage rate that is for fuel, is deemed to be at HMRC published advisory fuel rates on which you CAN CLAIM BACK VAT.
For example:
If an employee has a car with a 2000cc petrol engine, the fuel portion of the 45p/25p mileage rate is 14p per mile:

  • 14p per mile represents the gross cost (Net + 20% VAT)
  • For each mile that an employer pays an employee, the employer can claim back 2.33p in VAT.

Employers need to show HMRC on request VAT receipts that have enough VAT on them in order to cover the claim. If 1000 miles is claimed in the VAT period, the total value on the receipt must be as follows:

  • VAT reclaim will be 2.33p x 1000 = £23.30
  • The fuel receipts should total £139.80

Remember, it is possible to go back 4 years and reclaim VAT on mileage already paid – could be worth £000’s.