Mileage allowances

Produced by Tolley

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Mileage allowances
  • When are mileage allowances paid?
  • Approved mileage rates for company cars used on company business
  • Mileage rates for private cars used on company business
  • What records need to be maintained?
  • What VAT can be claimed on mileage allowances?

Mileage allowances

This guidance note provides details of the approved mileage rates and the fuel element that businesses can reclaim VAT on if they pay employees a mileage allowance when a car is used on company business.

When are mileage allowances paid?

Businesses can pay mileage allowances in the following circumstances:

The business funds both private motoring costs and it does not want to pay the VAT fuel scale chargeIf the business pays for fuel purchased for both business and private motoring and it does not want to pay the fuel scale charge, it will be necessary for the business to keep detailed mileage records that clearly separate the business from private mileage. VAT can only be reclaimed on the business mileage undertaken.
Please see Example 1 for how to calculate the amount of VAT that can be recovered
The business provides company cars and pays the employee for the fuel that they are purchased for business purposesIf employees buy the fuel, the business can recover VAT on the fuel purchased for business purposes. The business must provide evidence to HMRC that the employees were reimbursed for the actual expend

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