VAT on reimbursed business Miles

[Jel117]

How does a company account for VAT when it reimburses employees 40p a mile for business miles?

What reciepts/records do they need to keep?

Thanks

[vatexpert]

Companies can reclaim the VAT included in the fuel element of the mileage allowance paid to employees for business journeys. The rate used depends on the cc of the engine and whether it is a diesel or petrol engine. The actual per mile cost of the fuel can be calculated or the HMRC advisory rates or RAC/AA published rates can be used. Having established the cost of fuel per mile, VAT can be calculated at 7/47 of the mileage allowance paid.

The employee's claim form should be retained as evidence to substantiate the VAT claim. However, from 1.1.06, the employee must also hold a VAT invoice. Therefore, the employee should be instructed to attach the invoice, normally a less detailed invoice, to the claim form.

Joe Wilkins
www.vatexpert.net

[Jel117]

What do you mean by the fuel element of the mileage allowance?

Say for example 40p a business mile is reimbursed, how much VAT needs to be accounted for?

Thanks

[jpcentral]

The fuel element varies depending on size and type of vehicle. Current rates can be found here:

http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

John Perry
Central Business Services
Loughborough
www.centralbusiness.co.uk

[vatexpert]

Say the employee has a 2 litre car that does 30 mpg and is paying 89 pence per litre for petrol(£4.04 pence per gallon). He puts in a claim for 200 miles business motoring. He would be paid 200 x 40p = £80

The cost of the fuel is

£4.04 divided by 30 = 13.5 pence per mile. Therefore, the cost of the fuel would be 200 x 13.5p = £27. The reclaimable VAT element would be £27 x 7/47 = £4.02

Joe Wilkins