Claiming VAT on Mileage: Ultimate Guide for Employers
Emily Maina
Last update on:
July 29, 2024 10:10 AM
Published on:
One significant area of concern for employers in the UK is the costs associated with employee business travel, particularly mileage. Understanding how to claim Value Added Tax (VAT) on business mileage can lead to substantial savings.
But how does a business go about claiming VAT and how can you determine how much you’re eligible to claim as an employer? Our guide explains all you need to know about claiming VAT on business mileage as well as how using a mileage tracking app like Timeero can make filing claims a breeze.
Yes, you can claim VAT on business mileage in the UK if you pay your employees a mileage allowance. However, you can only claim the fuel portion of the business expense.
VAT is a tax applied to most goods and services in the UK. When a business is VAT-registered, it can reclaim the VAT it pays on certain business purchases, which includes reclaiming fuel used for business travel. Claiming VAT can significantly reduce your business costs.
Since VAT can only be reclaimed on the fuel portion of the mileage allowance, if your employees' mileage allowance covers wear and tear, unfortunately, that portion is not claimable. However, employers can claim the VAT element on expenses related to employee travel, such as accommodation and meals.
Here are some important things to note to qualify for a VAT mileage claim:
You must be able to show, preferably through an employee contract, that the car is only used for work-related activities and not for personal use. The miles traveled from home to work are not considered business mileage. Check out our commuting mileage reimbursement guide to learn more about this topic.
You need to maintain meticulous records of employee mileage claims. Thorough recording involves documenting the trip's date, destination, purpose, and the total mileage of each business journey. You can either use manual logs to document this information or use one of the best mileage tracking apps that automatically collects the necessary data.
You can reclaim VAT for additional expenses incurred while operating a car for work, such as off-street parking or repairs. The same rule applies to any accessories you’ve added to your vehicle for business use.
What Is the HMRC Mileage Claim Tax Relief Policy?
The HMRC (Her Majesty's Revenue and Customs) allows workers to claim tax relief on mileage expenses if they use their own bicycle, motorcycle, or car for work. These employees can claim mileage at the approved standard mileage allowance rates set by HMRC.
This table shows the current rates for 2024:
These rates cover various vehicle operating costs, including fuel, depreciation, insurance, and maintenance. Your staff members cannot make separate claims for expenses like repairs, vehicle tax, or MOTs.
Employees can only claim tax relief on the difference between the mileage allowance provided by their employer and the rate allowed by HMRC. If their reimbursement rates exceed or are equal to the approved amount, they will not be eligible for further mileage tax relief. Workers can use our HMRC mileage claim calculator to determine how much relief they can apply for.
Workers who use company cars do not use the HMRC mileage rates; instead, they apply advisory fuel rates to reimbursement amounts for using their own cars for business trips. Those who use electric cars can use HMRC electric car mileage rates.
As an employer, you should prioritize ensuring that both managers and employees are on the same page regarding reimbursement. Creating and implementing a reimbursement policy is one of the best ways to educate your workforce. If you are having trouble drafting a policy, we have created a customizable mileage reimbursement policy template to help get you started.
What Is the VAT Reclaim Rate for Business Mileage?
The HMRC mileage rates we’ve covered above include expenses beyond fuel. They factor in vehicle wear and tear, including repairs and fixed costs like road tax and insurance. The fuel portion of the mileage rate is what you can reclaim VAT for, so keeping fuel receipts will come in handy for your business mileage claim.
The standard VAT rate in the UK is 20%. When reclaiming VAT on reimbursed mileage, the claim is not a straightforward 20% of the total mileage reimbursement, but rather 20% of the fuel portion calculated using HMRC's advisory fuel rates.
HMRC advisory fuel rates are updated quarterly and reflect the cost of fuel for different types of vehicles. These rates represent the estimated fuel cost per mile for different vehicle categories based on engine size/cylinder capacity and type of fuel.
These are the rates from 1 June 2024:
These rates represent the fuel cost portion of the mileage claim and can be used to calculate the reclaimable amount of VAT. The rate for electric vehicles is 8 pence per mile.
How to Calculate VAT Reclaim on Mileage
Let's walk through a practical example to illustrate how to calculate the VAT you can reclaim on mileage claims.
An employee uses their car for business travel. The car runs on petrol and the engine size is between 1401cc and 2000cc. The employee travels 500 miles for business purposes within the first 10,000 miles of the year, which means the standard mileage allowance for the first 10,000 miles claimed by the employer is 45 pence per mile.
Here's how to calculate the VAT reclaimable amount:
Identify the advisory fuel rate: Based on the engine size and fuel type ( petrol car), the advisory rate from the table above is 16 pence per mile.
Calculate the fuel cost portion of the mileage claim: Multiply the advisory fuel rate by the number of business miles driven: 16 pence per mile * 500 miles = £80.
Determine the VAT amount: Since the current VAT rate in the UK is 20%, you can calculate the amount of reclaimable VAT on the fuel cost by multiplying it by 20/120 (which is equivalent to 1/6): £80 * (20/120) = £13.33.
Therefore, in this example, the employer or business owner can reclaim £13.33 in VAT for the employee's business mileage claim of 500 miles.
Can Freelancers and the Self-Employed Claim VAT on Mileage?
No, freelancers and self employed individuals can’t claim VAT on mileage. The information we’ve covered above applies to employers reclaiming VAT on mileage allowances paid to their employees. But if you're a freelancer or sole trader using your personal vehicle for business purposes, things get a bit trickier.
Here's why claiming VAT on mileage becomes complex for the self-employed:
VAT reclaim relies on an employer-employee dynamic. Since freelancers are not employed, they can't claim VAT on mileage allowances.
Sole traders are legally considered the same entity as their business, unlike directors in a limited company. The implication is that there's no distinction between you and the business, so the concept of "paying yourself" a mileage allowance doesn't apply. Consequently, VAT reclaim on mileage isn't an option for sole traders.
How Can Timeero Simplify Your VAT Mileage Claims?
Traditional mileage tracking methods involving manual record-keeping can be time-consuming, prone to errors, and inefficient. However, automated solutions like Timeero streamline the tracking process significantly.
Timeero automates tracking mileage for work, eliminating the need for employees to record their business journeys manually. By simply clocking in and out, your workers can focus on their tasks while the app accurately captures mileage. Employees can start the timer easily by clicking the “Clock in” button on the time clock. The app will then start recording distance if mileage tracking is enabled in your settings.
Record mileage accurately and in real-time with Timeero.
Timeero intelligently filters out non-business travel, such as commutes and traffic delays. Timeero’s commuter mileage feature begins tracking business mileage as soon as the predefined commute mileage threshold is reached. Remember, commuter mileage is classified as personal use of the vehicle and is therefore not claimable.
Another standout feature of Timeero is the app’s ability to customize speed thresholds. Thanks to Timeero’s drive detection feature, the app begins tracking mileage once the driver meets the predetermined speed threshold. With this custom functionality, your business can tailor the app to your specific needs.
Begin tracking mileage once your company’s custom speed threshold is met.
Timeero addresses potential connectivity issues with its offline mileage tracking capabilities. For instance, if an employee is working in an area with poor internet connection, the app will continue recording time and mileage and sync the data when their connection improves. With continuous tracking, no data is ever lost.
Timeero offers a comprehensive solution for efficient and accurate mileage tracking. By automating the tracking process, minimizing errors, and providing valuable insights, this software simplifies VAT mileage claims, saving businesses time and money while ensuring compliance.
Let’s look at how Timeero can help you with other aspects of employee management.
Expense Tracking
Beyond mileage tracking, Timeero allows employees to easily document work-related expenditures directly within their timesheet, whether they be tolls, parking fees, or other business-related costs.
Employees provide accurate and transparent expense reporting by attaching photos of receipts or entering detailed notes. This documentation eliminates the need for separate expense tracking systems and simplifies employee and administrator reimbursement processes.
Workers can add photos and notes to timesheets.
Real-Time Visibility
Timeero’s GPS tracking feature offers employers unprecedented visibility into their field teams’ locations. By monitoring employee whereabouts in real time, businesses can optimize schedules, improve response times, and enhance operational efficiency.
Timeero’s “Who’s Working” dashboard displays employee locations in real time.
This feature also serves as a valuable tool for ensuring employee safety and accountability.
Let’s say, for instance, you own a delivery company with a fleet of drivers.
Using Timeero’s GPS tracking, dispatchers can monitor driver locations in real-time. This information can help you optimize delivery routes when necessary and ensure timely deliveries. Additionally, real-time visibility can help resolve customer disputes by providing evidence of the driver's location at a specific time.
Segmented tracking displays a visual timeline of an employee's workday.
Suggested Route and Route Replay
If you’re looking to claim VAT on mileage, chances are you have employees who travel for work often. Timeero's suggested route feature helps your employees save time and fuel by recommending the most efficient travel paths. By reducing travel time, your small business will be able to lower operational costs and improve employee productivity.
Timeero shows the most efficient driving routes.
Timeero’s route replay function offers unparalleled transparency and accountability. By visualizing the exact paths employees take, businesses can verify mileage claims. This feature can help identify potential reporting discrepancies and improve route planning in the future.
Seamless Integration
Timeero's integration capabilities further streamline the mileage reimbursement process. The software automates data transfer by seamlessly syncing with popular payroll and invoicing platforms, including Vieventium, QuickBooks, Paychex, Rippling, Gusto, Xero, ADP, Zapier, and Paylocity.
This integration allows accurate and timely reimbursement calculations, improving employee satisfaction and financial management.
Integrations streamline reimbursement processes.
Use Timeero For Accurate Mileage Tracking
Value Added Tax (VAT) is a critical consideration for businesses when managing expenses related to employee mileage. Claiming VAT on mileage can be a complex process, but with diligent record-keeping and adherence to HMRC guidelines, employers can significantly benefit from potential savings.
A tool like Timeero can simplify how your business records employee mileage, ensuring you have an accurate record when filing a VAT claim. Sign up for Timeero’s free trial today to see how beneficial this software can be for your business.
FAQs
Is VAT Reclaimable on Mileage Allowances Paid to Employees?
You can reclaim VAT on the fuel element of the mileage allowance. VAT cannot be reclaimed on the entire mileage allowance paid to employees if the allowance covers more than fuel.
What Is the VAT Reclaim Rate for Business Mileage?
The VAT reclaim rate for business mileage is calculated as a fraction of the HMRC advisory fuel rate. This rate represents the estimated fuel cost per mile and determines the VAT-reclaimable portion of the mileage allowance.
Claiming VAT on Mileage: Ultimate Guide for Employers
Emily Maina is a tech-savvy writer with a passion for creating content. With years of experience in the industry, she is well-versed in the latest trends and developments in the tech industry. When she’s not working, Emily enjoys exploring the great outdoors or watching her favorite shows.
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