Claiming VAT On Mileage

Driving your own car and thinking of claiming VAT on mileage? If you're VAT registered, you can claim some of it ...

The way it works is you can claim mileage rates of 45p per mile for the first 10,000 miles done in the year, then 25p per mile from then on. This mileage rate, however, is meant to cover you for fuel, wear and tear and road tax.

"Basically, you're claiming all the costs related to driving your car for your business miles!"

HMRC allow you to claim back the VAT part of the fuel element only. This fuel element varies depending on what sort of car you drive. Advisory fuel rates change regularly so you should always look them up on the HMRC website.

As an example, if you drive a petrol vehicle with an engine size over 2000cc then you can claim the VAT element on 21p per mile, 1401cc to 2000cc is 14p per mile and less than 1400cc is 12p per mile. These were the rates as of 1st December 2019 but are subject to change.

So here is a worked example for you.

If you drove 200 miles for your business in January 2020 in a petrol vehicle and your engine size is greater than 2000cc, I would work out the fuel element like this:

- Mileage claimed total is 200 x 45p = £90.00
- Fuel element is 200 x 21p then divided by 6 for the VAT = (200*21) /6 = £7.00
- Therefore entering into the accounts that would be a total of £90.00 which is a net amount of £83 with a VAT total of £7.00

Does that make sense?

In Sage, you can enter it in one line as a bank payment or supplier invoice if that is how you claim expenses and just enter the NET and VAT columns to be £83.00 and £7.00 respectively, using Tax Code T1.

As you can see from the image above, in Xero you will need to split your transaction into two lines; the VAT element on one line with the rest on the next line, as per this example.

If anything I've written here resonates with you, call me on 01604 420057 and let's see how we can help you.