VAT on mileage claims: how much an employer can reclaim, band by band

A VAT-registered employer can reclaim VAT on the fuel part of the mileage allowance it pays employees — not on the whole 55p. HMRC’s method is the fuel element times the VAT fraction, 1/6 at the standard rate. The fuel element can be taken from the advisory fuel rates, and the fuel receipts have to cover it. Below is the reclaimable VAT per business mile for every advisory fuel rate band from 1 September 2026, calculated from HMRC’s published figures.

Reclaimable VAT per business mile, from 1 September 2026

These figures apply whether the employee drives their own car (paid at the approved mileage rates) or a company car with the business paying for business fuel at the advisory fuel rates. In both cases the VAT sits in the fuel, and the fuel is what the advisory rate measures.

The rule, in HMRC’s words

And the VAT fraction is defined in the same notice: “The VAT fraction is VAT rate ÷ (100 + VAT rate).” With the standard rate at 20%, that is 20 ÷ 120, or 1/6.

Where does the fuel element come from? HMRC leaves room here: “We publish rates on Company cars — advisory fuel rates for company cars but also accept rates set by recognised motoring agencies, such as the Royal Automobile Club (RAC) and the Automobile Association (AA).” Most employers use the advisory rate for the car’s fuel and engine size because it is published, quarterly and defensible.

A worked example

An employee drives their own 1401cc to 2000cc petrol car 1,000 business miles and is paid the approved rate of 55p a mile.

The employer can treat £28.33 as input tax, provided it holds fuel receipts for at least £170.00 of fuel dated within the claim period. The remaining £380.00 of the allowance is not the fuel element, and HMRC’s rule gives no reclaim on it.

Receipts: the condition people miss

Without receipts there is no reclaim, however carefully the mileage is logged:

Two more lines in the same paragraph decide how it works in practice. The invoices only need to cover the business fuel, not every litre bought. But “A claim cannot be supported by a VAT invoice which is dated after the dates covered by the claim.” So a receipt from the first week of the next quarter cannot support this quarter’s claim. The simplest policy is to ask drivers to submit all fuel receipts with every mileage claim.

The mileage records

For each employee paid a mileage allowance, HMRC expects records showing: the mileage travelled; whether the journey is both business and private; the cylinder capacity of the vehicle; the rate of mileage allowance; and the amount of input tax claimed. The cylinder capacity is there because it decides which advisory rate — and so which fuel element — applies.

Electric cars

Electricity is treated differently depending on where the car is charged:

• Public charging point: “If an employee charges an electric vehicle (whether this is a company vehicle or not) at a public charging point, the supply of electricity is made to the company or employer.” The employer can reclaim, keeping mileage records to separate business and private use.
• At the employee’s home: the supply of electricity is to the employee, and “The employer is not entitled to recover the VAT on the cost of charging the electric vehicle.”
• Under review: “We are considering the situation where an employee is reimbursed by the employer for the actual cost of electricity used in charging an electric vehicle for business purposes.”

That is why the table above marks the home-charging row: the advisory rate can still be used to pay the employee, but the VAT fraction of it is not the employer’s to reclaim.

When the business buys the fuel

If the business pays for fuel directly — fuel cards, company cars — the question becomes private use. HMRC gives four options: claim all the VAT on business-only fuel; claim all of it and apply the fuel scale charge; keep detailed mileage records and split business from private; or claim none.

• Scale charge: “A scale charge is a way of accounting for output tax on road fuel bought by a business for cars that is then put to private use.” It is set by the car’s CO₂ emissions.
• Claiming nothing: “If you do not claim any input tax on any road fuel bought by the business, then you do not need to account for output tax on the private use of the fuel.”
• Splitting by mileage, in HMRC’s own example: “If for example, your records show that the total mileage is 4,290, of which 3,165 is business mileage, and the total cost of the fuel is £368.” “The cost of the business mileage is £368 × (3,165 ÷ 4,290) = £271.49.” At 1/6, that is £45.25 of input tax. (The exact product is £271.4965…; HMRC’s notice shows it cut to £271.49 rather than rounded to £271.50. We quote HMRC’s figure as published.)

Repairs are separate again: “If you use a vehicle for business purposes, you can reclaim the VAT you were charged on repairs and maintenance as input tax as long as the business paid for the work.”

Putting it in the expenses policy

• Say the allowance you pay and the advisory rate you use as its fuel element.
• Require fuel receipts with every claim, dated within the period.
• Capture engine size and fuel type once per car, not once per claim.
• For electric cars, say whether home charging is reimbursed and on what evidence.

The VAT on the rest of a business trip — trains, flights, taxis, hotels — is on VAT on business travel. Partial exemption and non-business activities can restrict any reclaim. This page reproduces HMRC’s notice and published rates as read on 2026-09-25; it is not tax advice.

Common questions