Claiming VAT on Mileage Claims
An employee or director that uses their own car for business mileage can be reimbursed 45p for the first 10,000 miles and 25p thereafter, every year, tax free.
The 45p/25p not only covers fuel costs but also covers wear and tear, road tax, service, MOT and other running costs. If the business is VAT-registered it will be able to reclaim VAT on the fuel element of this reimbursement.
You need to work out how much the fuel element of the mileage is in order to work out how much VAT you can reclaim. We advise using the advisory fuel rates published by HMRC.
IMPORTANT: The advisory fuel rates are updated every quarter so you need to check every time you raise a mileage claim.
Example
If you have a petrol car which is 1600cc. As per the advisory fuel rates, 14p per mile is assumed to be fuel. The 14p is VAT inclusive so the VAT element is 2.33p (14/120*20). This means that for every mile you can therefore reclaim 2.33p in VAT.
*HMRC insist that you have enough fuel receipts to cover the amount of the claim.
Accounts
Make sure you have an account to post personal expenses to. For a company director you’ll need a ‘director’ account and for a sole trade or partnership you’ll need a ‘drawings’ account.
If you don’t have a personal expense account, you can add one by going to the cog at the top right of your screen and under ‘Your Company’ select ‘Chart of Accounts’ & click ‘New’.
Then add the following details:
Account Type: ‘Cash at bank and in hand’
Detail Type: ‘Cash on hand’
Name: ‘Director account’ OR ‘Drawings’
How to add to Quickbooks?
Let’s say as in the above example, 14p per mile is fuel and you have travelled 100 miles.
Add a new expense in Quickbooks
Payment account: ‘director account’ OR ‘drawings’
Add two lines with the same account category (travelling or motor expense)
Enter the descriptions as “Mileage-fuel element” and “Mileage- non fuel element”
Select “Tax Inclusive”
Put the fuel element amount in the first line – 14p x 100 = £14
Put the non-fuel element amount in the second line – (45p – 14p) x 100 = £31
Select 20% S as the VAT code for the first line and no VAT 0% for the second line
Make sure you also attach a petrol receipt to the expense claim covering the total VAT
IMPORTANT: The advisory fuel rates are updated every quarter so you need to check every time you raise a mileage claim.
Repaying Mileage
To repay the mileage, simply pay the amount back to yourself from the business bank account to your personal account and post it in the banking screen to ‘director account’ OR ‘Drawings’.