VAT on mileage expenses paid to employee for using for their own vehicle

If an employee claims expenses for using their own vehicle and the employer pays them at 45p per mile, how much of that 45p, if anything, can the employer reclaim VAT? The employer is a VAT registered company. For reference I'm referring to these rules regarding the 45p - https://www.gov.uk/government/publications/rates-and-allowances-travel-mileage-and-fuel-allowances/travel-mileage-and-fuel-rates-and-allowances#company-cars I contacted HMRC on the phone and they sent me here: https://www.gov.uk/guidance/advisory-fuel-rates. However those rates only apply to employees using a company car and it actually states that very clearly that 'You must not use these rates in any other circumstances.'

The link HMRC sent you is correct. It is not helped by the fact that the guidance doesn't actually make reference to VAT because the advisory fuel rates are used for other taxes (payroll, etc) as well and that yes, it does say company car, however, we also use the same tables for VAT reclaim purposes for personally owned cars (even though it says you can't). It has always been contradictory guidance. If we take the September 2023 rates for diesel and assuming it is a 2litre diesel and claimed 100 business miles :- 1600cc or less 12 pence 1601cc to 2000cc 14 pence Over 2000cc 19 pence The calculation for input tax reclaim is :- 19p (advisory fuel rate for 2lt diesel) x 100 (miles) x 1/6 (VAT inclusive) so £3.16 of VAT can be reclaimed but you must have fuel receipts as proof of purchase from the employee. I am sure HMRC Admin will come along and confirm this for added reassurance.

Thank you for your response . The only part I'm confused about is the employees providing a fuel receipts. So if an employee does not buy fuel because they have enough for the business journey in the tank. Does that mean the next time they fill up they have to give us a copy of their fuel receipt, even though it's unrelated to that particular business journey and the date on the receipt will not match up with their expense claim form. If we do not get a VAT fuel receipt from the employee does that mean we cannot claim the fuel element of VAT on the 45p? If so, would we have to go back retrospectively and update our accounting records to reflect zero input VAT because we couldn't get fuel receipts? Thanks

Name Removed admin .

You can only ever reclaim input tax if you hold a valid VAT invoice or VAT receipt - this rule applies to any purchase made by a VAT registered business. For example, a sale person has a coffee and sandwich during the day, they can submit an expense claim to be reimbursed their costs but unless they also supply a receipt from the shop, then the business cannot reclaim the VAT. Coming back to fuel, you do not need to be too clinical about this, as long as the employee supplies you with a receipt that is within a reasonable date range then that should be fine. As long as the receipt is dated before the business trip is sufficient and yes, the receipt might be for £100 of diesel but the employee only using £5 of diesel for their business trip, it doesn't matter, what matters is the business has a VAT receipt from petrol station dated on or before the journey. There is a reason why every petrol station you visit always asks if you want a VAT receipt. Yes, the amounts of VAT could be very small for a small business with 1-2 employees and chances are HMRC will not spot these during a VAT inspection, but chances of being spotted is not the same as following the rules, so if there are occasional missing receipts then its risky but unlikely to cause a HMRC meltdown, but if the values are higher and missing receipts are regular, then it leaves the business at risk of HMRC seeking repayment of that VAT. Guidance here, scroll down halfway https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit55400

Hi.
If the employee is paid 45p per mile then the company would work out the input tax by multiplying the fuel element of the mileage allowance by the VAT fraction
Road fuel bought for business
The advisory rates published on our website are accetable to use as they are an accurate and fair way of working out the fuel element of the 45p per mile paid to the employee.
Advisory fuel rates

HMRC Admin please could you respond in regards to fuel receipts. Do we need to have fuel receipts from every single employee that claims for mileage if we use the advisory fuel rates to calculate the fuel element for input tax? Thanks,

Hi .
Please see the guidance below which explains the requirement for VAT invoices to justify the claim:
Motoring expenses: road fuel and the private use of cars

Input tax when employees are paid a mileage allowance does not say anything about fuel receipts? It says employers must keep records of: the mileage travelled; whether the journey is both business and private; the cylinder capacity of the vehicle; the rate of mileage allowance; and the amount of input tax claimed. Therefore please can you confirm if a fuel receipt is needed or not?

Hi. The guidance states; If employees are reimbursed for road fuel they have bought for business purposes the VAT charged can be treated as input tax. This can only be done if the business can show that the employee has been reimbursed either: •for their actual expenditure; or •by way of a mileage allowance. The business must also obtain and retain invoices for all fuel purchased by its employees. This means either full VAT invoices or less detailed invoices. Input tax can only be claimed on the cost of fuel for business use in making taxable supplies so any invoices need only cover this amount. HMRC accepts that the amount of the invoice in many cases will not match the input tax claim in respect of business fuel in any one claim period, particularly where fuel is purchased towards the end of the period. Clearly a claim cannot be supported by a VAT invoice that is dated after the dates covered by the claim. This means, in practice, that it may be advisable for employers to arrange for their employees who use, or may use, their cars for business purposes to retain all fuel invoices. This will ensure that, at the end of the claim period the value of business fuel is covered by an invoice: VAT Input Tax  . Thank you .

The guidance you have referenced above relates to when fuel is purchased by employees. However, the guidance also states that for Input tax when employees are paid a mileage allowance (which is what we are paying them at 45p per mile) then these rules apply: Input tax is calculated by multiplying the fuel element of the mileage allowance by the VAT fraction (VAT rate divided by 100 + VAT rate). The allowance paid to employees must be based on mileage actually done. Business records must be kept to back this up. The business must retain records for each employee claiming a mileage allowance to show: • the mileage travelled; • whether the journey is both business and private; • the cylinder capacity of the vehicle; • the rate of mileage allowance; and • the amount of input tax claimed. HMRC officers may check what rates employers have used to calculate claimable input tax on the fuel element of mileage allowances paid to their employees. Current rates as published by motoring associations such as AA or RAC are generally acceptable. HMRC will also accept HMRC’s own advisory rates which are published twice a year and can be found at Company Cars - advisory fuel rates. Some employers cap employees to a particular level of allowance. For example, the employer may decide that employees with cars with engines over 2000cc will receive only the rate paid for vehicles between 1400 and 2000cc. If this happens HMRC will only allow input tax recovery on the mileage rate that the employer has paid to the employee. This guidance does not mention anything about having employee fuel receipts?

Hi,

We have checked this wIth with our policy team and can confirm that VAT invoices are necessary.

If employees are reimbursed for road fuel they have bought for business purposes the VAT charged can be treated as input tax. This can only be done if the business can show that the employee has been reimbursed either:

• for their actual expenditure; or
• by way of a mileage allowance.

The business must also obtain and retain invoices for all fuel purchased by its employees. This means either full VAT invoices or less detailed invoices. You can see guidance here:

VIT55400 - Motoring expenses: road fuel and the private use of cars

Paragraph 9.10 of VAT Notice 700/64 also confirms the need for the business to keep invoices unless the employee purchases the fuel using a fuel cars, credit card or debit card provided by the employer as below:

9.10 Keeping invoices to recover VAT on fuel bought by employees on your behalf and used for business purposes

You need to keep invoices unless your employee buys the road fuel using fuel card, credit card or debit card provided by you as the employer.
You can recover VAT where road fuel is delivered to your employees and paid for by them on your behalf for use in your business. You must reimburse your employees for the cost of this fuel either on the basis of actual cost or by means of a mileage allowance.
From 1 January 2006, you must retain invoices issued to your employees when the fuel is delivered to them. This can be a full VAT invoice or a less detailed VAT invoice. Input tax may only be claimed on the cost of fuel for business use in making taxable supplies. As such, the invoices only need to cover this amount.

Road fuel bought for business

Thank you.