MilometryVAT and mileage: the part that is easy to miss
If you are VAT registered and paying mileage, there is input tax buried in the fuel element, but only if you keep the receipts.
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A VAT-registered business paying employees a mileage allowance for business journeys in their own cars can usually reclaim the VAT on the fuel element of those payments, subject to the normal rules if the business also makes exempt supplies. It is easy to miss, because the mechanism is not obvious and the paperwork requirement is easy to fail.
What you can reclaim
Not the VAT on 55p. The approved rate (55p for the first 10,000 business miles from 6 April 2026, then 25p) covers the whole cost of running the car: insurance, servicing, depreciation. Most of that carries no reclaimable VAT.
What the business can reclaim is the VAT contained in the fuel part of the mileage payment, and the allowance has to be based on miles actually driven. HMRC's Advisory Fuel Rates are the usual way to work out the fuel part. VAT Notice 700/64 also accepts rates set by recognised motoring organisations, such as the RAC and the AA.
So the calculation runs: business miles × the relevant advisory fuel rate = the fuel element; the VAT fraction of that is what you reclaim.
The calculation, worked
10,000 business miles, employees reimbursed at the approved 55p, with an advisory fuel rate of 14p a mile (illustrative: the rate for a petrol car of 1,400cc or less from 1 September 2026; check the current table):
| Step | Figure |
|---|---|
| Mileage paid to employees | 10,000 × 55p = £5,500 |
| Fuel element (advisory rate) | 10,000 × 14p = £1,400 |
| VAT fraction of the fuel element (1/6 at 20%) | £233.33 |
| Fuel receipts you must hold | At least £1,400 worth |
The last row is the condition that is easiest to fail: the reclaim is only supportable if the purchases can be evidenced. The £233.33 is VAT the business recovers; it is not extra money for the employee, whose mileage payment is unchanged.
The condition that catches people
The business must hold VAT receipts for fuel to support the claim, and a record for each employee of the miles travelled, whether journeys were business or private, the car's engine size, the mileage rate paid and the VAT claimed.
That is where claims often fall down. The employee bought the fuel, kept no receipt, and the business has a mileage claim it cannot support with purchase evidence. The receipts need to cover the fuel element being reclaimed on. HMRC accepts they will not match the claim exactly in any one period and may straddle periods, but a receipt dated after the period a claim covers cannot support it.
That is why HMRC's own guidance suggests employers may want staff to keep all fuel receipts, even though they are paid mileage rather than fuel. It feels redundant to them and it is the difference between a supportable reclaim and not.
The rates move quarterly
Advisory Fuel Rates are reviewed every three months, on 1 March, 1 June, 1 September and 1 December. HMRC lets the previous rates be used for up to a month after a change; beyond that, an old figure gives the wrong fuel element.
Whatever produces the claim needs the rate in force when the miles were driven.
Scale charges, briefly
If the business pays for private fuel in a car as well, there is a separate mechanism, the road fuel scale charge, which lets the business reclaim input tax on all the fuel and account for a flat fuel scale charge, set by the car's CO2 band, to cover private use. The alternatives are to use detailed mileage records and reclaim only the business share, or to reclaim no VAT on road fuel at all. Which comes out better depends on the ratio of business to private mileage: at very low mileage the scale charge can exceed the VAT reclaimed.
Either way, the number you need first is the split between business and private miles, which is a record-keeping question long before it is a VAT one.
Sources
- VAT on motoring expenses (VAT Notice 700/64) (HMRC)
- Advisory fuel rates (HMRC)
- Increasing mileage rates (HMRC policy paper)
- Travel, mileage and fuel rates and allowances (HMRC)
- Business travel mileage for employees' own vehicles (HMRC)
- How long to keep your records: employees and others filing a tax return (HMRC)
- How long to keep your records if you're self-employed (HMRC)
General information, not tax or VAT advice. VAT on motoring is detailed and the treatment depends on your business: take advice before reclaiming.
