Reclaim VAT from mileage payments

May 6th 2015

If you pay your employees a mileage rate for the business use of their personal vehicles, as long as you do not exceed the approved rates per mile, there is no necessity to report these payments to HMRC and the payment will not be treated as a taxable benefit. Employers and employees may also find the notes that follow instructive:

1. The maximum tax free rates per mile for the use of a car are: 45p per mile for the first 10,000 business miles and 25p per mile thereafter.
2. Employers are not obliged to pay these rates, but if they are exceeded the excess will need to be reported to HMRC as a benefit in kind.
3. If employers pay less than the 45p (25p) rates the employee can obtain tax relief on the difference by making a claim to HMRC.
4. Employers can reclaim the deemed VAT on the fuel elements of the mileage allowance payments by using the approved fuel rates. See table below.

Advisory fuel rates per mile from 1 March 2015 are:

• 1400cc or less: petrol 11p; LPG 8p.
• 1401-2000cc: petrol 13p; LPG 10p.
• Over 2000cc: petrol 20p; LPG 14p.

Diesel rates are:

• 1600cc or less: 9p
• 1601-2000cc: 11p
• Over 2000cc: 14p

Example:

David is paid for a 200 mile business trip at 30p per mile (his annual business mileage claims are well below the 10,000 maximum). He runs a 1500cc petrol car. He can make a claim to HMRC to deduct £30 mileage allowance from his taxable pay (200 x 15p).

His employer can recover VAT input tax on the fuel element (200 x 13p) x 1/6 = £4.33.

If you would like help to make back-dated claims to recover VAT if you are an employer; or make a claim if you are paid less than the 45p (25p) rate, please call DSC Chartered Accountants in Harrogate for further advice.