This article discusses the following:

If companies are purchasing fuel in the UK or paying mileage allowance to their employees for using their own vehicles for work purpose, companies are entitled to reclaim VAT on mileage expenses.

Companies can reclaim VAT as per the mileage rates specified by the UK's tax, payments and customs authority, HMRC. The rates specified depend upon the type of fuel (Diesel, petrol or LPG) that is being used for the vehicle.

As a business, companies can reclaim the VAT on their employees’ mileage expenses if they’re paying their employees a mileage allowance for using their own vehicle for work. Companies will only be able to reclaim VAT on the fuel portion of the mileage claim.

For calculation of fuel portion of a business trip, a simple method is applied by using HMRC published Advisory Fuel Rates. The rates are published by HMRC to cover the amount which a company can pay tax free to the person who drives car for business purposes and pays the money from his own pocket towards fuel cost.

The rate varies based on the type of fuel (petrol, diesel or LPG) and engine size for your car, van or motorbike. For hybrid cars one can use the relevant section prescribed by HMRC.

Link to the dedicated website of HMRC: https://www.gov.uk/guidance/advisory-fuel-rates

Rydoo will provide you with a report (up-to-date) of all the mileage expenses with fuel that are created for UK branches in your account.

The report also details the actual fuel receipts uploaded by the user, actual VAT that can be claimed based on fuel receipts uploaded by the user, maximum number of fuel receipts needed to claim full VAT on fuel, maximum potential to reclaim VAT and total VAT to reclaim.

The UK mileage report is accessible in the Rydoo Insights module under the compliance section. To enable or gain access to the Rydoo Insights module please contact your success manager or account executive.

How does it work for the users/employees?

Your employees will create a mileage expense and upload their fuel receipt. This data will eventually then show in the UK mileage VAT reclaim report.

VAT on mileage = ( advisory fuel rate x business miles claimed ) / 6

The above equation is divided by 6, as the advisory fuel rates is given as gross and already includes VAT which is 20% (i.e. 120/20=6)

Let’s consider an example where an employee drives their own car (1.6 litre petrol engine) for 1,600 miles for business purpose in February-2020.

In this case the company would

The company will be treated as having made a purchases of fuel of £224 (inclusive of VAT) and will be able to reclaim £37.33 in VAT.