Chiral Accountants
Reclaiming VAT on Mileage: Is the 55p per Mile Worth It?
The Short Answer
If your business is VAT-registered and pays mileage at HMRC's approved rate of 55p per mile, you can reclaim some VAT - but only on the fuel part of that 55p, not the whole amount.
The 55p is designed to cover the full cost of running a car: fuel, insurance, servicing, tax, depreciation and wear and tear. Most of those costs carry no VAT (insurance is exempt, depreciation isn't a purchase at all), so HMRC only lets you reclaim VAT on the fuel element - and only if you hold VAT receipts for fuel to back it up.
In practice the VAT works out at roughly 2p to 4.5p per mile. Whether that's worth collecting receipts for depends on how much your business drives.
Who Can Claim?
You can usually claim if:
- Your business is VAT-registered under standard VAT accounting (including cash accounting and annual accounting).
- You pay mileage to employees or directors for business journeys in their own car or van.
- The payment is based on miles actually driven, supported by a mileage log.
- You hold VAT receipts for fuel that cover at least the VAT you are claiming.
You can't (or shouldn't) claim if:
- You're on the VAT Flat Rate Scheme - you don't reclaim input VAT on running costs at all.
- You don't have fuel receipts. A mileage log alone is not enough.
- You're already reclaiming VAT on the actual fuel for the same journeys (that would be double counting).
- The journeys are ordinary commuting - home to a permanent workplace isn't business travel.
- Your business makes mainly VAT-exempt supplies - partial exemption rules may restrict what you can recover.
The rules are set out in HMRC's VAT Notice 700/64: Motoring expenses.
How the Calculation Works
HMRC accepts its own Advisory Fuel Rates (AFRs) as the "fuel element" of a mileage payment. AFRs are normally used for company cars, but they're also the accepted way to split out fuel from the 55p. They depend on the car's fuel type and engine size, and they change every quarter.
The formula
Business miles × Advisory Fuel Rate × 1/6 = VAT you can reclaim
AFRs include VAT, so you take 1/6 (the VAT fraction at 20%) to find the VAT inside them.
Advisory Fuel Rates from 1 September 2026 and the VAT inside them
| Fuel Type | Engine Size | AFR per Mile | VAT per Mile |
|---|---|---|---|
| Petrol | 1400cc or less | 14p | 2.33p |
| Petrol | 1401cc to 2000cc | 17p | 2.83p |
| Petrol | Over 2000cc | 27p | 4.50p |
| Diesel | 1600cc or less | 15p | 2.50p |
| Diesel | 1601cc to 2000cc | 16p | 2.67p |
| Diesel | Over 2000cc | 22p | 3.67p |
| LPG | 1400cc or less | 11p | 1.83p |
| LPG | 1401cc to 2000cc | 13p | 2.17p |
| LPG | Over 2000cc | 20p | 3.33p |
Hybrids use the petrol or diesel rate for their engine. Rates are reviewed on 1 March, 1 June, 1 September and 1 December, and the previous rates can be used for up to one month after a change. Always check the current HMRC Advisory Fuel Rates for the period you're claiming.
The fuel element doesn't change after 10,000 miles
The mileage rate drops from 55p to 25p after 10,000 business miles in a tax year, but the car still uses the same fuel per mile. The VAT calculation stays based on the AFR, not on whether you're paying 55p or 25p.
Worked Example and Bookkeeping Entries
A director drives 200 business miles in their own 1.6 litre petrol car and claims mileage from the company at 55p per mile.
Splitting the mileage claim
| Calculation | Amount |
|---|---|
| Mileage claim (200 × 55p) | £110.00 |
| Fuel element (200 × 17p AFR) | £34.00 |
| VAT on fuel element (£34.00 × 1/6) | £5.67 |
| Net fuel cost (£34.00 − £5.67) | £28.33 |
| Non-fuel element - no VAT (£110.00 − £34.00) | £76.00 |
Journal lines for the mileage claim
| Account | VAT Treatment | Debit | Credit |
|---|---|---|---|
| Motor expenses - mileage (fuel element) | 20% standard rate | £28.33 | |
| VAT control account (input VAT) | - | £5.67 | |
| Motor expenses - mileage (non-fuel element) | No VAT / outside scope | £76.00 | |
| Expense claims payable (or director's loan account) | - | £110.00 | |
| Total | £110.00 | £110.00 | |
Journal lines when the claim is paid
| Account | Debit | Credit |
|---|---|---|
| Expense claims payable (or director's loan account) | £110.00 | |
| Bank | £110.00 |
Doing this in Xero, Sage or QuickBooks
You don't need a manual journal. Enter the mileage claim as an expense claim or bill with two lines:
- Line 1: £34.00 (VAT inclusive) coded to mileage at 20% on expenses - the software works out the £5.67 VAT.
- Line 2: £76.00 coded to mileage at No VAT.
Using tax codes like this means the VAT flows into your Making Tax Digital VAT return automatically: £5.67 in Box 4 and £28.33 in Box 7. The £76.00 is outside the scope of VAT and doesn't appear on the return. A journal posted straight to the VAT control account may not be picked up by your VAT return at all.
The director still receives the full £110.00 tax-free. Reclaiming the VAT doesn't change what you pay them - it only changes how the company records the cost.
The Records You'll Need
A mileage log
Date, start and end points, purpose of each journey and miles driven. You need this anyway to pay mileage tax-free.
Vehicle details
The fuel type and engine size of each car, so you apply the right Advisory Fuel Rate. Keep this on file and update it if the employee changes car.
Fuel VAT receipts
Receipts showing the VAT paid on fuel must at least equal the VAT you reclaim, and should be dated on or before the end of the VAT period. Card statements and till slips without VAT details aren't enough.
Which AFR you used
Note the rate and the quarter it applied to. If HMRC checks your return, you'll need to show how each figure was worked out.
In the example above, the director would need to hand in fuel receipts showing at least £34.00 of fuel (containing £5.67 of VAT). They don't need receipts for every fill-up - just enough to cover the claim.
Is It Worth It?
For many small businesses, honestly, not always. Here's why.
The amounts are small
At 2.83p per mile (a typical 1.6 litre petrol car), a director doing 1,000 business miles a year recovers about £28 of VAT. That's less than £10 per VAT quarter.
It's partly offset by tax
Every pound of VAT you reclaim is a pound less expense in your accounts. For a limited company paying 25% Corporation Tax, the real gain is only 75% of the VAT reclaimed (81% at the 19% small profits rate).
The admin adds up
Collecting fuel receipts, tracking engine sizes, applying a different AFR each quarter and splitting every claim takes time. If you pay someone to do your bookkeeping, that time costs money - possibly more than the VAT recovered.
Errors carry risk
Claiming VAT on the whole 55p, using the wrong AFR or not holding receipts can lead to HMRC disallowing the claim, plus interest and potentially penalties. A small claim done wrongly isn't worth the trouble.
What it's really worth
Based on a 1.6 litre petrol car at the 17p AFR, for a limited company paying 25% Corporation Tax.
| Business Miles a Year | Fuel Receipts Needed | VAT Reclaimed | Corporation Tax Relief Lost | Real Gain |
|---|---|---|---|---|
| 1,000 | £170 | £28.33 | £7.08 | £21.25 |
| 5,000 | £850 | £141.67 | £35.42 | £106.25 |
| 10,000 | £1,700 | £283.33 | £70.83 | £212.50 |
It's usually worth it when...
- You or your staff drive several thousand business miles a year.
- You have more than one person claiming mileage.
- The cars have larger engines (higher AFRs mean more VAT per mile).
- Expenses already go through digital expense software where receipts are photographed anyway.
It's often not worth it when...
- Business mileage is occasional - a few hundred miles a year.
- Getting receipts out of people is a constant chase.
- You're on the Flat Rate Scheme (you can't claim anyway).
- The car is electric and charged at home (see below).
VAT on Mileage Calculator
Enter your business miles and vehicle to see roughly how much VAT you could reclaim, and what it's really worth after tax.
Other Things Worth Knowing
Electric cars
Electricity bought at public chargers can be handled in the same way using HMRC's Advisory Electricity Rate (15p per mile), backed by VAT receipts from the charging app. Home charging is harder: the electricity is on the employee's domestic bill at the reduced 5% rate and in their name, so in most cases we wouldn't recommend claiming it.
Sole traders and partners
If you're self-employed and claim simplified mileage for your own car, the same fuel-element approach applies on your VAT return, with the same need for fuel receipts.
Motorcycles and bicycles
There's no VAT to reclaim on the 20p bicycle rate. HMRC doesn't publish AFRs for motorcycles, so you'd need your own evidence of the fuel cost per mile - rarely worth it.
Passenger payments
The extra 5p per mile for carrying a colleague doesn't buy any more fuel, so there's no additional VAT on it.
Past claims
If you haven't been reclaiming this VAT, you can generally go back up to four years, but only where you still have the receipts and mileage records. The 55p rate applies from 6 April 2026, so any claims paid at 45p since then can be topped up.
It doesn't affect the employee
Reclaiming the VAT is purely a matter for the business. The employee still receives the full mileage payment tax-free, and nothing changes for their tax.
Common Mistakes to Avoid
Mistake 1: Claiming VAT on the whole 55p
Taking 1/6 of 55p gives 9.17p per mile - three or four times the correct figure. Only the fuel element (the AFR) contains VAT.
Mistake 2: No fuel receipts
Since 2006 HMRC has required VAT receipts to support the claim. Without them, the VAT isn't recoverable, however accurate the mileage log.
Mistake 3: Using an out-of-date AFR
AFRs change quarterly. You can use the old rate for one month after a change, but after that the new rate must be applied.
Mistake 4: Posting VAT outside your VAT codes
A journal straight into the VAT account may not reach your MTD VAT return. Use the correct VAT codes on the claim itself so it's picked up in Boxes 4 and 7.
For the wider rules on mileage payments, company cars and fuel benefit, see our Motoring Expenses guide.
Note: This information is a general guide to reclaiming VAT on mileage payments in the UK. VAT rules, mileage rates and Advisory Fuel Rates can change, and partial exemption or special VAT schemes may affect what you can recover. Always seek professional accounting or tax advice tailored to your specific circumstances to ensure full compliance with HMRC guidelines.