Understanding How to Claim VAT on Mileage for Your Business Expenses
By Cecilia Reyes · · 3 min read
Claiming VAT on mileage can seem daunting, but it’s a valuable way for businesses to reduce costs. If you’re a sole trader, small business owner, or part of a larger company, understanding how to navigate VAT claims on mileage is essential. This article provides insights into the necessary steps, requirements, and potential pitfalls involved in the process.
What is VAT on Mileage?
VAT, or Value Added Tax, is a tax levied on most goods and services in the UK. When it comes to business travel, you can claim VAT on certain expenses related to mileage. This applies whether you use a personal vehicle for work or a company car. However, not all mileage claims are straightforward.
Types of Mileage Claims
There are generally two methods for claiming VAT on mileage:
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Actual Expense Method: This involves tracking all the expenses incurred for using your vehicle for business purposes. It includes fuel, maintenance, and other related costs. Here, you can claim VAT on the total costs incurred while using your vehicle for business.
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Mileage Allowance Method: Instead of recording each individual expense, businesses can use a flat rate per mile driven for business purposes. The HMRC has set rates which can simplify the calculation process. However, the VAT you can claim is based on the approved mileage rates.
Eligibility for Claiming VAT on Mileage
To make a successful claim, certain criteria must be met:
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Business Use: The mileage must be for business purposes and not personal use. If a journey combines both aspects, only the business portion can be claimed.
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Record Keeping: Accurate records must be maintained. This includes logbooks detailing dates, distances traveled, and the purpose of each journey. Using apps or spreadsheets can help in tracking this information efficiently.
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VAT Registration: To reclaim VAT, your business must be VAT registered. If your business is not registered, you won’t be able to claim back VAT on any expenses, including mileage.
Calculating VAT on Mileage
For businesses opting for the mileage allowance method, calculating VAT on mileage can be straightforward. The HMRC has established approved rates that businesses can use:
- For cars: 45p per mile for the first 10,000 miles and 25p thereafter.
- For motorcycles: 24p per mile.
- For bicycles: 20p per mile.
To calculate the VAT, you’ll determine the total mileage driven for business purposes and multiply it by the applicable rate.
Next, you can calculate the VAT on the total mileage by applying the VAT rate (currently 20% in the UK) to the mileage allowance claimed. For instance, if you drive 1,000 business miles using a car, your claimable amount would be:
- Total Mileage Allowance: 1,000 miles x 45p = £450
- VAT on Mileage: £450 / 6 = £75
The resulting £75 would be the VAT amount you can claim back.
Claiming VAT on Fuel Costs
If you choose to claim VAT on actual expenses instead, you can include the VAT from fuel receipts. However, there are specific rules regarding fuel claims, particularly if you are using a personal vehicle. If your vehicle is used for both business and personal reasons, you will need to apportion the VAT based on the business mileage.
Fuel Scale Charges
Another option related to fuel is the fuel scale charge. If a business provides fuel for its employees’ business use, the company must account for the VAT on any fuel provided for private use. The scale charge is based on the CO2 emissions of the vehicle and can simplify the VAT accounting process.
Common Pitfalls to Avoid
While claiming VAT on mileage can provide significant savings, there are common mistakes businesses should avoid:
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Inaccurate Record Keeping: Failing to properly log business miles can result in lost claims. It’s essential to keep detailed records and receipts.
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Mixing Personal and Business Use: Claiming VAT on mileage that includes personal use can lead to incorrect claims. Ensure you differentiate between business and personal journeys.
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Missing Deadlines: Businesses must submit VAT returns on time. Keeping track of deadlines can prevent penalties and ensure you get your claims processed smoothly.