If your employees drive for work or you run a fleet, you’re likely paying out mileage expenses regularly. Many UK businesses miss out on legitimate VAT claims simply because the rules around how to reclaim VAT on mileage aren’t straightforward.
In this guide, we’ll break down everything you need to know about reclaiming VAT on business mileage, from eligibility criteria to the specific rates you can claim.
Can you reclaim VAT on mileage?
Yes, you can reclaim VAT on mileage, but only if you are VAT registered. If you are, the process for claiming VAT on mileage is as follows:
Company car:
Yes, you can reclaim VAT on fuel used for business journeys. You buy the fuel, get a VAT receipt, and reclaim the VAT based on the miles travelled for business.
Employee’s private car:
Yes, but only on the fuel portion of their mileage claim (not the full 45p/25p rate).
The standard HMRC mileage rates (45p per mile for the first 10,000 miles, then 25p) cover fuel plus wear and tear, insurance, servicing, and depreciation. You cannot reclaim VAT on the entire rate.
However, you can reclaim VAT on just the fuel element if you:
- Calculate the actual fuel portion separately
- Have reimbursed your employee enough to cover that fuel amount
- Have fuel receipts that relate to the journey and cover the value of the fuel portion.
Important note: The above is only applicable for actual employees on your payroll – not contractors or freelancers. Charities, non-profits and other industries may have different VAT rules and should check specific guidance for their sector.
Understanding company cars and VAT
For company-owned vehicles, the situation is different. You can reclaim fuel VAT on business mileage, but you need to separate business travel from private use. HMRC requires you to track the fuel portion of each business journey, which means keeping detailed records of mileage and fuel purchases.
When an employee uses a company car for both business and private journeys, you have two main options. You can reclaim all the VAT on fuel and then account for private use through the Fuel Benefit Charge, or you can reclaim VAT only on business mileage by using advisory fuel rates.
Most businesses find the second approach simpler and more cost-effective, particularly if employees do significant private mileage.
Here’s how you work out the fuel amount
HMRC publishes advisory fuel rates (AFRs) quarterly. These rates represent the cost per mile of fuel for different engine sizes and fuel types. You can use these rates to calculate the fuel element of business journeys in company cars, and this is the amount on which you can reclaim VAT.
The rates vary depending on your vehicle’s engine capacity and whether it runs on petrol, diesel, or LPG. For example, as of the latest update, a petrol car with an engine size of 1400cc or less has a rate of 13p per mile, while a diesel car over 2000cc sits at 15p per mile. Electric vehicles have their own rate structure, reflecting their different running costs.
These rates change regularly based on fuel prices, so you need to stay updated. Using outdated rates can lead to under-claiming or over-claiming VAT, both of which create headaches during audits.
Calculating your VAT reclaim
Here’s where it gets fiddly: Whether you’re managing company cars or a grey fleet of employee vehicles.
For company cars: You need to track business versus private mileage and apply the correct VAT reclaim to fuel receipts.
For grey fleet (i.e. personal vehicles, not owned by a company, that are used by employees for business purposes): It’s even more complex. Let’s say your employee drives 500 business miles in their personal car with a 1600cc petrol engine. The current advisory fuel rate (AFR) is 14p per mile. The fuel cost for those business miles is £70 (500 miles × 14p).
Now you need to:
- Track the fuel portion separately from the full mileage rate.
- Apply the correct AFR for each vehicle type and engine size.
- Keep records that satisfy HMRC.
- Do this every month, for every employee.
Miss a detail, use the wrong rate, or fail to document it properly and you could lose the reclaim (or face questions during an audit).
Record keeping requirements
HMRC is strict about the documentation you need to support VAT claims on mileage expenses. You must keep records showing the business mileage completed in each company vehicle, the dates of journeys, and the fuel purchased. Simply having fuel receipts isn’t enough if you can’t demonstrate which journeys were for business purposes.
Your records should include the origin and destination of each journey, the distance travelled, and the business purpose. Many businesses use mileage log books, but these are prone to errors and can be time-consuming to maintain manually. GPS tracking and automated mileage capture systems are the alternatives to here (but these aren’t fool proof).
It’s worth noting that these records must be contemporaneous. You can’t reconstruct mileage logs months later based on diary entries or memory. HMRC expects you to record journeys at the time they happen, or very shortly afterwards.
Common mistakes to avoid
Mistake 1: Not reclaiming VAT on employee personal vehicle mileage
Many businesses assume that if an employee uses their own car, there’s no VAT to reclaim at all. That’s not true – you can reclaim VAT on the fuel portion of personal vehicle mileage. However, the calculation is complex enough that many businesses simply don’t bother.
You need to:
- Separate the fuel cost from the total mileage allowance
- Track which advisory fuel rate applies to each employee’s vehicle
- Ensure you’ve reimbursed enough to cover the fuel element
- Keep proper documentation for HMRC
It’s this added complexity that stops businesses from claiming what they’re entitled to. If you’re paying employees for business mileage in their own cars and not reclaiming the fuel VAT, you’re leaving money on the table.
Mistake 2: Confusing advisory fuel rates with full mileage allowance rates
The 45p per mile rate covers all vehicle costs (fuel, wear and tear, insurance, servicing). The advisory fuel rate is much lower because it represents only the fuel element. Using the wrong rate in your VAT calculations will result in incorrect claims.
Mistake 3: Using outdated rates
HMRC updates advisory fuel rates quarterly (and sometimes more frequently). If fuel prices have increased and you’re still using old rates, you’re under-claiming VAT. If prices have dropped and you haven’t adjusted, you risk over-claiming, which can trigger penalties during an audit.
Electric vehicles and VAT
Electric vehicles introduce additional complexity to fuel VAT calculations. Since they don’t use traditional fuel, the advisory fuel rate works differently. HMRC has two distinct rates for electric vehicles based on where the vehicle was charged:
- 8p per mile for home charging.
- 14p per mile for public charging.
This means employees must now track not only the miles they travel but also where their EV was charged, adding another layer of admin to an already complex process.
Only public charging mileage reimbursement is eligible for VAT reclaim. And the process remains the same in principle, but you’re calculating based on electricity costs rather than petrol or diesel. If employees charge company electric vehicles at home or at public charging points, you need to capture those costs and separate business use from private use.
HMRC accepts calculations based on the advisory fuel rate as evidence of the electricity cost, which simplifies things considerably. You don’t need to calculate the actual cost of electricity per kWh used. The flat rate per mile makes the administration much more manageable.
Why automation matters
Given the complexity of tracking business mileage, calculating the correct fuel element, applying the right advisory fuel rates, and maintaining compliant records, manual processes simply don’t scale. Spreadsheets and paper logs create opportunities for errors, missed claims, and compliance issues.
Modern mileage tracking systems automate much of this work. They can capture journey details automatically, apply the correct rates, calculate VAT reclaim amounts, and generate the documentation HMRC requires. This not only saves time but also ensures you’re claiming everything you’re entitled to while maintaining full compliance.
How Webexpenses simplifies VAT reclaim on mileage
This is where we come in. Our platform is built specifically to handle the complexities of mileage expenses and VAT reclaim. We provide accurate, point-to-point mileage calculations, so you always have precise distance data for every journey.
Whenever HMRC publishes new rates, our system makes it easy to adjust your mileage rates to match. This means you can always keep working with current figures without having to manually track rate changes.
Built-in policy flags and verification features simplify the admin review process, catching potential issues before claims are submitted.
For VAT reclaim specifically, our platform captures the fuel portion of each journey automatically for both company and personal vehicles. The reporting suite lets you export all the information you need for your VAT returns, including breakdowns by vehicle, employee, and time period. Whether you’re dealing with petrol, diesel, or electric vehicles, the system handles the different rate structures seamlessly.
We also support international mileage claims with different rates for different countries, which is particularly useful if you have employees travelling across Europe. The policy reinforcement ensures relevant receipts are present to maximise your VAT reclaim while keeping you compliant with HMRC guidance.
Ready to streamline your mileage expense management and ensure you’re claiming all the VAT you’re entitled to? Book a demo to see how Webexpenses can transform your expense processes.
