You are probably aware that if an employee uses their own vehicle for work, they can claim back the mileage from their employer or get a tax deduction for the same amount from their employment income.
The HMRC approved mileage rates are given in the table below:
|From tax year 2011 to 2012 onwards||First 10,000 business miles in the tax year||Each business mile over 10,000 in the tax year|
|Cars and vans||45 pence||25 pence|
|Motor cycles||24 pence||24 pence|
|Bicycles||20 pence||20 pence|
HMRC’s rate includes an estimate for both the fixed (insurance, road tax etc.) and the variable (wear and tear) costs of running a car. After 10,000 miles, HMRC considers you reimbursed for the fixed costs, hence why there is a lower rate for miles claimed thereafter.
As long as the employer pays at or below the approved amount, they don’t have to report this to HMRC as no tax is due. However, if the employee is paid less than the standard 45p, they will be able to get Mileage Allowance Relief on the difference.
Claiming Back the VAT
An often overlooked point is that the employer can claim back the VAT on the fuel portion of this mileage. As mentioned above, HMRC regards the approved mileage rate as comprising a number of different factors, one of which is fuel.
As VAT is charged on fuel, HMRC allow you to claim back the VAT from the fuel portion of the mileage. To calculate this, they use their advisory fuel rate, which estimates the amount of fuel used per mile based on engine size.
The Advisory Fuel Rates from 1 September 2019:
|Engine size||Petrol – amount per mile||LPG – amount per mile|
|1400cc or less||12 pence||8 pence|
|1401cc to 2000cc||14 pence||10 pence|
|Over 2000cc||21 pence||14 pence|
|Engine size||Diesel – amount per mile|
|1600cc or less||10 pence|
|1601cc to 2000cc||11 pence|
|Over 2000cc||14 pence|
The Advisory Fuel Rates are updated by HMRC on a quarterly basis and you should, therefore, check for the latest rates published on the HMRC website here.
A list of past rates is also available on the HMRC website.
An employee drives a petrol car with an engine size of 1600cc. In the tax year 2018/19, they use their car for 12,000 business miles.
HMRC estimates the cost of the fuel as:
12,000 x 14p = £1,800 (inc VAT at 20%)
Calculating the VAT portion of this cost is as follows:
£1,800 ÷ 1.2 = £1,500
£1,800 – £1,500 = £300
In this example, that leaves £300 of VAT paid on fuel that can be claimed back from HMRC on the employer’s VAT return, equivalent to about 2.3p per mile.
An important point, however, is that HMRC may request to see VAT receipts to cover the amount being claimed, so ensure that you have receipts covering the full cost of the fuel – £1,680 in the above example. If you don’t want to have to keep a year’s worth of fuel receipts on the off chance that HMRC come knocking, there are a number of smartphone apps that allow you to keep a record of these.
For the self employed, mileage allowance can be claimed as a simplified method of getting tax relief for motoring expenses. Rather than keeping a record of all the receipts and then making private use adjustments, they can simply claim 45p per mile (or 25p for mileage over 10,000) on business mileage.
The above method of VAT recovery can also be used provided the sole trader (or partnership) is voluntarily registered for VAT and trading under the VAT turnover threshold. However, if they are VAT registered and trading above the VAT threshold then the full cost method must be used for VAT.
This publication has been prepared by RRL LLP. It is to be treated as a general guide only and is not intended to be a comprehensive statement of the law or represent specific tax advice. No liability is accepted for the opinions it contains, or for any errors or omissions. All rights reserved.