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.