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Don’t lose out on reclaiming VAT for UK motoring expenses

Don’t lose out on reclaiming VAT for UK motoring expenses

Greg Cole

Reclaiming VAT on fuel used for business mileage is sufficiently complex that you may not have time to do it manually.

Perhaps you do, but use a manual process that’s time consuming and prone to mistakes. Either way, using an expense management system like Zetadocs Expenses can offer significant cost and time-saving benefits by helping you track business trips in private cars and company cars, recording the associated fuel and working out the correct VAT. Using our Google Maps integration you can also check distances when submitted on the app automatically.

With Zetadocs Expenses, managers can approve from anywhere, on any device, helping to speed up approvals. Approved expenses are then exported to your ERP system, saving any rekeying of mileage expenses for reimbursement and posting the VAT automatically into the correct VAT posting groups.

Keeping the taxman happy

Although an employee does not charge VAT directly on mileage allowance payments, there is an implied payment of VAT on the fuel used for business mileage. HMRC allows this to be reclaimed by the employer provided the employee has provided sufficient appropriate VAT receipts for purchasing fuel for that business mileage.

So let’s take a look at how Zetadocs helps with each of the most common motoring expense scenarios in a bit more detail:

Company cars where fuel paid by employee

In this case, the employee claims for business mileage, typically at advisory fuel rates.

HMRC publishes advisory fuel rates for company cars which can be used when employees pay for the fuel and are reimbursed for business travel in their company cars. For example: a 2.2 litre petrol engine car has an advisory fuel rate of 21p/mile. That implies VAT @ 20% of 3.5p/mile to reclaim.

Fuel Rates

Zetadocs Expenses’ vehicle reports record total mileage, business mileage and fuel purchases to do this calculation using the advisory fuel rates.

Company cars where all fuel paid for by the company

In this scenario, the employee records the business mileage and odometer, and is charged back for any private mileage at the HMRC advisory fuel rates.

Whether the fuel is purchased on a fuel card, a corporate credit card or if the employee pays for the fuel directly and claims it back, the company ends up paying and the employee is charged back for any private mileage.

Zetadocs Expenses’ vehicle reports also cater for this scenario to record total mileage, business mileage and fuel purchases, using the advisory fuel rates to calculate the cost of fuel used for private travel and what needs to be repaid. VAT in the scenario can still be reclaimed easily by using Zetadocs Expenses, whether paid for by employee at first or charged directly to a company credit card. The fuel card monthly VAT invoice may be used for reclaiming VAT, saving the need for the employee to keep a VAT receipt for each refueling. You can read how the process works using Zetadocs Expenses here.

Private cars where fuel paid by employee

In this case, the employee claims for business mileage at a set rate to cover the cost of fuel, running expenses and depreciation.

HMRC publishes approved mileage rates for calculating the “mileage allowance relief” for business mileage in privately owned vehicles. Most employers pay a mileage allowance for business mileage at these mileage rates, and no personal tax is then due. For cars, this is currently 45p/mile for the first 10,000 business miles in the tax year and 25p/mile thereafter. These rates are higher than the advisory fuel rates for company owned vehicles as they also include an allowance for depreciation, servicing, wear and tear, insurance and road tax.

It’s normally impractical for an employer to insist that an employee provides details of all fuel purchases for a private car and the total private mileage, so Zetadocs Expenses does not calculate the actual fuel costs for the business mileage in a private car. Instead, the advisory fuel rates for company cars are used for calculating the VAT on the fuel used for business mileage in private cars. Zetadocs Expenses calculates this VAT for reclaim and requires the capture of sufficient VAT receipts for fuel purchases for that business mileage. It will warn approvers if further receipts are needed:

Fuel VAT

Taking the pain out of reclaim

So in summary, Zetadocs Expenses offers significant time-saving benefits over manual methods of managing motoring expenses. It may even encourage you to start reclaiming the VAT on mileage that you’ve avoided doing in the past due to sheer effort.

Zetadocs Expenses helps you with each of the most common motoring expense scenarios. It has vehicle reports for company cars to record all business miles, period end odometer reading and all fuel receipts. It calculates the VAT paid on fuel for business mileage and exports this to your ERP system so that it can be reclaimed. For private cars, it allows business mileage to be claimed by staff, warning employees to submit sufficient VAT fuel receipts for the company to reclaim VAT at the HMRC advisory fuel rates.

To book a personal demo contact or leave your contact details here

You can also view our other apps available on AppSource or register for Zetadocs Expenses Express here, which is our free express edition of expense management available for up to 25 users within an organization.

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