Last updated: 14 October 2026
Can you reclaim VAT on employees’ mileage allowance?
Yes, but only on the fuel part of the mileage payment, and only if you hold VAT receipts for fuel that cover that amount. A 45p-a-mile approved mileage allowance payment covers wear and tear, insurance and fuel. HMRC lets a VAT-registered business reclaim the VAT included in the fuel element, using HMRC’s advisory fuel rates (AFRs) to work out that element.
How the fuel element is calculated
HMRC publishes advisory fuel rates every quarter, in pence per mile, by engine size and fuel type. They show the fuel cost within a mileage payment. The VAT you can reclaim is the VAT fraction of that fuel cost, which is 1/6 at the 20% standard rate.
Worked example
An employee drives 1,000 business miles in a 1,600cc petrol car and is paid 45p a mile (£450). The fuel element is worked out using HMRC’s advisory fuel rate for that engine size, which HMRC updates quarterly. As an illustration only, at a rate of 13p a mile the fuel element would be £130. Use the current published rate in practice.
- Fuel element (illustrative rate): 1,000 × 13p = £130
- VAT to reclaim: £130 × 1/6 = £21.67
The rest of the £450 has no VAT to reclaim, because insurance, servicing and depreciation are not supplies made to your business. Always use the advisory fuel rate that applied on the date of the journey. HMRC updates the rates on 1 March, 1 June, 1 September and 1 December.
The receipts rule
You must keep fuel receipts from the employee that show VAT of at least the amount you reclaim. The receipts should be dated on or before the journeys they cover. Without valid receipts, HMRC can refuse the claim at a VAT inspection, even when the mileage log is perfect.
Mileage records you need
- Date and purpose of each journey
- Start and end points, and the business miles driven
- The vehicle’s engine size and fuel type
- The rate paid and the advisory fuel rate used
Electric cars
For fully electric cars, HMRC publishes an advisory electricity rate. Employees who charge at home rarely have a VAT invoice addressed to the business. Public charging receipts can support a claim for the fuel element of electric mileage.
Company cars are different
If the car belongs to the business, different rules apply. You may reclaim VAT on fuel and then account for private use with the fuel scale charge, or claim VAT on business fuel only. See our guide to electric company cars and allowances.
Directors and the self-employed
The same approach works when a limited company pays its director a mileage allowance for a personal car. Sole traders who use simplified expenses (45p a mile) can also reclaim VAT on the fuel element in their VAT return, if they keep fuel receipts.
Common mistakes
- Reclaiming VAT on the full 45p a mile
- Using an out-of-date advisory fuel rate
- No fuel receipts, or receipts dated after the journeys
- Claiming VAT on mileage paid for commuting, which is not business travel
Frequently asked questions
Is the 45p mileage allowance itself subject to VAT?
No. It is a payment to the employee, not a supply, so it has no VAT. You can only reclaim the VAT in the fuel cost.
Do I need the employee’s receipts or can I use my own?
The receipts should relate to fuel bought for the vehicle used on the journeys, normally the employee’s own receipts.
Can I reclaim VAT on mileage for a car with an engine over 2,000cc?
Yes. Use the advisory fuel rate for that engine size.
What about the 25p rate after 10,000 miles?
The VAT claim is still based on the advisory fuel rate, whatever the mileage allowance rate.
Need more on VAT? See how to record VAT when claiming expenses and our VAT accountants.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with VAT on mileage and expenses. See our VAT accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
