Employees and company cars - Mileage allowances & VAT

5 years, 4 months ago by Oliver Atkinson

Employees and company cars - Mileage allowances & VAT

Employees and company cars - Mileage allowances & VAT

If an employee uses a company car and claims a mileage allowance then you can claim vat on mileage claim by using advisory fuel rates.

Advisory fuel rates can only be used when you either reimburse employees for business travel in their company cars or require employees to repay the cost of fuel for private travel.

When you reimburse an employee for mileage (currently 45p per mile for first 10,000 miles), 45p covers many things such as insurance, road tax, wear and tear and fuel. HMRC states that you can claim vat on the fuel portion of the mileage allowance. Fuel portion is set by HMRC and is called advisory fuel rates which is based on the engine of the car and the fuel type.

Input vat = Business mileage x Advisory Fuel Rate x vat fraction (vat rate divided by 100+vat rate)

For example:

If an employee uses a company car with a 1400cc petrol engine, the fuel portion is 11p.

11p per mile represents 120% (100% plus 20% vat). Therefore 20/120 multiplied by the 11p is 1.83p per mile. So for each mile that you pay the employee, you can claim back 1.83p in vat) you will need to show HMRC on request that VAT receipts have enough vat on them to cover the claim).

So if 1000 miles is claimed in the vat period, the total vat reclaim will be 1.83p x 1000 = 18.30