Mileage allowance – Reclaiming VAT

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If an employee or director uses their own vehicle for allowable business journeys the company can pay them a tax free allowance to compensate them for this.

Reclaiming VAT

If the company is VAT registered then they may be able to reclaim some input tax (VAT on purchases) in relation to this payment. VAT is reclaimed based on the Advisory Fuel Rate (AFR), which can be found here. VAT is not claimed on the rate which the employees is paid.


For example is the AFR is 12p per mile, the company could reclaim input tax of 2p per mile (12p x 20/120).


To support the input tax claim the company must obtain a VAT receipt from the employee for the fuel.



The following rates currently apply when making a business mileage claim of a privately owned vehicle

Kind of vehicle Rate per mile from 6 April 2011 Rate per mile from 6 April 2002 to 5 April 2011
Car or van 45p for the first 10,000 miles 40p for the first 10,000 miles
25p after that 25p after that
Motorcycle 24p 24p
Cycle 20p 20p

 You should hold a log of all the business mileage that the employee has incurred ‘wholly and exclusively’ for business purposes to support any claim.