VAT Claims and business mileage
From the 1 January 2006 HM Revenue & Custom (HMRC) changed the rules governing the way you claim VAT on mileage allowances paid to employees. The only practical change to the current system is that garage VAT receipts must now be kept to support your VAT claim on business mileage. It is important that these receipts are kept in the same way as those for your other business expenses.
From the 1 January 2006, all such claims must be supported by a garage VAT receipt in order for you, as the employer, to be able to reclaim the VAT on the fuel element of the expenses reimbursed. A debit or credit card slip, which most people are routinely given at filling stations, is not sufficient. If, in the past you have reimbursed employees for their business fuel costs but never claimed the VAT element of those payments through your VAT return, you may be entitled to a VAT refund for up to three years for periods prior to 1 January, even in the absence of VAT receipts. For an employer reimbursing employees, say, £40,000 a year for mileage, this could lead to a refund of as much as £6,000.
Which employees are affected by the new rules?
The change affects those employees driving company cars, as well as those employees who claim mileage allowance for driving their own cars for business journeys. The changes do not affect employees who buy their fuel using an employer-provided fuel car, credit or debit card or a garage fuel account, where garage VAT receipts are already required to support a claim.
What do the VAT receipts have to cover?
VAT may only be reclaimed on the cost of fuel for business use and the receipts only need to cover this amount. Company car drivers who are paid a fuel-only rate will need VAT receipts to cover at least the full amount of the mileage expenses claimed. Where a mileage rate is paid of, say, 40p a mile, it is only the fuel element that needs to be covered.
Are there any other practical considerations?
HMRC accept that the amount of the VAT receipts in many cases will not match the VAT reclaimed in respect of business fuel in any one claim period and that receipts may cover more than one period, particularly where fuel is purchased towards the end of the period. However, the receipts must always at least cover the amount of VAT reclaimed. A claim cannot be supported by a VAT receipt that is dated after the dates covered by the claim. This means, in practice, that it may be advisable for you to arrange for your employees who use, or may use, their car for business purposes to retain all their garage VAT receipts. This will ensure that, at the end of the claim period, the value of business fuel is covered by receipts. These VAT receipts will need to be kept in the same way as all other VAT receipts. HMRC may well review these receipts in years to come and failure to keep them could result in your business mileage VAT claim being disallowed. Consequently, interest, penalties and a repayment to HMRC could become due.
continued…
How we can help
Whether you require advice on the paperwork requirements or need to make a claim to recover VAT suffered in the past, our specialist VAT team would be pleased to help you.
For further information about James Cowper and how we may be able to assist you, visit www.jamescowper.co.uk
Newbury James Cowper, Phoenix House Bartholomew Street, Newbury Berkshire RG14 5QA Tel: +44 (0)1635 35255 Fax: +44 (0)1635 40500
Oxford James Cowper, Willow Court 7 West Way, Botley Oxford OX2 0JB Tel: +44 (0)1865 200500 Fax: +44 (0)1865 200501
Reading James Cowper, 3 Wesley Gate Queen’s Road, Reading Berkshire RG1 4AP Tel: +44 (0)118 959 0261 Fax: +44 (0)118 939 3385
Henley James Cowper, North Lea House 66 Northfield End, Henley on Thames Oxfordshire RG9 2BE Tel: +44 (0)1491 572 565 Fax: +44 (0)1491 411 705
The information contained in this factsheet must not be relied on as giving sufficient advice in any specific case.