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.
How to add to Xero?
IMPORTANT: The advisory fuel rates are updated every quarter so you need to check every time you raise a mileage claim.
Let’s say as in the above example, 14p per mile is fuel and you have travelled 100 miles.
Add a new bill (click ‘+’ & then ‘bill’)
From: enter the employee/director name that is to be reimbursed for mileage
Date: enter the date the mileage relates to
Reference: Mileage
Amounts are: Tax Inclusive
Add two expense lines with the following descriptions - ‘Mileage fuel element’ & “Mileage non fuel element”
Description: ‘Mileage fuel element’
Quantity = 100
Unit price = 0.14p
Account = ‘Mileage’ or ‘Motor Vehicle Expenses’
Tax Rate = ‘20% VAT on Expenses’
Amount = £14.00
Description: ‘Mileage non fuel element’
Quantity = 100
Unit price = 0.31p (45p - 14p)
Account = ‘Mileage’ or ‘Motor Vehicle Expenses’
Tax Rate = ‘No VAT’
Amount = £31.00
Click ‘Approve’