Reclaiming VAT on Mileage Claims

I currently reimburse a number of my employees who use their own vehicles and pay for their own fuel the HMRC approved mileage rates of 40p and 25p per mile. Can I claim back any VAT on these amounts?

1st February 2009

Yes, but unfortunately you will not be entitled to claim back VAT on the full amount. Instead you can reclaim the VAT applicable to the deemed fuel element of the mileage rate, and you need to ensure the employee submits a valid VAT receipt in support of the claim. 

The fuel element of the mileage rate currently varies between 7p and 17p, and depends on the type of vehicle and the type of fuel being used. The rates are available from www.hmrc.gov.uk .

The requirement to submit a valid VAT receipt was introduced as a result of ruling made against the UK in March 2005, where the European Court ruled that the UK legislation which allowed employers to reclaim the VAT element on mileage claims submitted by employees was in breach of EU legislation for two reasons:

  • the purchases are actually supplied to the employees as private individuals and therefore the employers have no right to deduct because the goods are not supplied to them as taxable persons.
  • even if there were a right to deduct, employers as taxable persons cannot exercise that right because they do not hold a VAT invoice.

The UK government has therefore introduced secondary legislation which allows employers to recover the VAT on fuel purchased by their employees for business purposes, as long as they hold a valid VAT invoice in support of the claims that are submitted.

By Jo Nockels

Disclaimer: Advice shared in this blog is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this forum, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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