VAT recovery on employee mileage - July 2006

Following a recent tax case the government have issued a new order from 2005:

Employers are able to treat as input tax the VAT incurred by their employees on fuel costs, that are reimbursed to the employees by the employer. Either on the basis of the actual cost of the fuel (7/47 x cost, if all business) or by means of a mileage allowance i.e. 40p per mile, mileage claim, of this 12p is said to be for fuel. Therefore the amount claimable for input VAT is 7/47 x 12p = 2p per mile.

The proposed new order makes it explicit that employers can recover that VAT on fuel which is for use in their businesses in making taxable supplies and must hold a VAT invoice in support of their claim. So long as fuel invoices are provided which cover the value of the VAT claimed, it is suggested that petrol receipts should be submitted with the expenses claim.

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