🚗 VAT on Mileage Claims (Limited Companies)

What You Can Reclaim & How It Works

If you use your personal vehicle for business journeys, your limited company can reimburse you using HMRC’s approved mileage rates—and yes, you can reclaim some VAT on this.

📊 The Basics

When a company pays mileage to a director/employee:

  • The mileage rate includes fuel, wear & tear, insurance, etc.
  • BUT only the fuel element contains VAT
  • So, only a portion of the mileage claim is VAT reclaimable

💷 HMRC Approved Mileage Rates

  • 45p per mile (first 10,000 miles)
  • 25p per mile (thereafter)

👉 These are set by HMRC and are tax-free if used correctly.

⛽ What VAT Can You Claim?

You can reclaim VAT on the fuel element only, not the full mileage rate.

To do this, HMRC provides Advisory Fuel Rates (AFRs) depending on:

  • Engine size
  • Fuel type (petrol, diesel, hybrid)

🔢 How the VAT Calculation Works

Step 1: Identify Fuel Rate

Example (illustrative):

  • Petrol car: 14p per mile fuel rate

Step 2: Extract VAT

VAT = Fuel element × (1/6)

👉 Example:

  • 1,000 business miles
  • Fuel element = 1,000 × 14p = £140
  • VAT reclaimable = £140 × 1/6 = £23.33

⚠️ Key Conditions to Reclaim VAT

To reclaim VAT, you MUST:

  • ✅ Be VAT registered
  • ✅ Have valid VAT fuel receipts
  • ✅ Ensure receipts cover at least the fuel used for business mileage
  • ✅ Keep a mileage log (date, journey, purpose, miles)

❗ No fuel receipts = no VAT reclaim

🧾 What Counts as a Valid Fuel Receipt?

  • Petrol/diesel receipt showing VAT
  • Dated and from a fuel station
  • Doesn’t have to match exact journeys—but must be sufficient overall

🚫 What You CANNOT Do

  • ❌ Reclaim VAT on the full 45p/25p rate
  • ❌ Reclaim VAT without fuel receipts
  • ❌ Claim for private mileage
  • ❌ Double claim (e.g. mileage + actual fuel costs)

🔁 Alternative Method (Actual Costs)

Instead of mileage, the company could:

  • Pay for actual fuel costs
  • Reclaim VAT on all fuel

BUT then:

  • You must account for private use fuel (fuel scale charge)

👉 For most small businesses, mileage method is simpler and more tax efficient

💡 Practical Tips

  • Keep a simple mileage log (Excel or app)
  • Keep all fuel receipts—even small ones
  • Review AFRs regularly (they change!)
  • Ensure claims are processed regularly (monthly ideally)