Something we’re often asked by clients is “Can I claim the VAT back on mileage?”. The answer is yes – but not on all of it.

When a business owner puts petrol in their car they have a few options for deciding how much of it is an allowable business expense. If they drive for a living and the vehicle and petrol is 100% for business then the fuel bill is a business expense and all the VAT can be reclaimed. If it’s a vehicle that’s also used for personal use then things get a little more complicated. Some will opt to keep detailed records of business and personal miles then apportion fuel bills, many more opt to use the HMRC mileage allowance on business miles only and put these through the accounts.

The current mileage allowance for private cars is 45p per mile for the first 10,000 miles in a tax year and 25p per mile for additional business miles driven in the same tax year. These rates are supposed to include an element of reimbursement for the vehicle’s other running costs such as servicing and wear and tear. VAT can only be reclaimed on the fuel portion of the mileage rate.

To calculate the fuel only element you need to refer to the HMRC advisory fuel only rates. These are re–issued each quarter and the latest rates apply from December 2012.

As an example, if client John drives 100 miles in his car, which has a 1.8 litre petrol engine, then the value of the fuel according to the advisory rates is

100 x 18 pence = £18.00

The VAT on this is calculated by multiplying this amount by the VAT rate ÷ (100 + VAT rate) currently 20÷120 (or 1/6)

so the VAT John can reclaim is 18÷6 or £3.00      (or 3p on every business mile)

If you’re putting the miles in to an accounts package then it can help to split the 45p mileage rate in to 18p that includes VAT and 27p that doesn’t.

In order to reclaim the VAT component of the fuel element, John would have to have enough VAT petrol receipts to cover the amount of fuel, so for his 100 mile journey he’d have to have VAT receipts for £18.00 worth of fuel.