VAT Receipts and Employee Mileage Claims

February 2006

In last month’s enews we reported on the changes to the procedures for input VAT recovery by employers on employees’ mileage allowances. Customs have issued further clarification of the evidence required to support a claim for input VAT recovery. We set out below a summary of the procedures:

  • The change comes into effect from 1 January 2006 regardless of the VAT return period end date. From that date, employers should retain VAT invoices, including less detailed garage VAT invoices their employees obtain from the fuel supplier as proof of purchase.

  • Customs acknowledge that businesses will need a little time to make the necessary changes to their arrangements in order to hold VAT invoices in support of their claims. Therefore, Customs will be administering the change with a ‘light touch’ until such time as businesses have had a reasonable period to adjust to the new requirement.

  • As with the existing system, input tax may only be claimed on the cost of fuel for business use. As such, invoices only need to cover this amount.

  • Customs accept that the amount of the invoice in many cases will not match the input tax claim in respect of business fuel in any one claim period and that invoices may cover more than one period, particularly where fuel is purchased towards the end of a period.

  • Clearly, a claim cannot be supported by a VAT invoice which is dated after the dates covered by the claim. This means, in practice, that it may be advisable for employers to arrange for their employees who use, or may use, their cars for business purposes to retain all fuel invoices. This will ensure that, at the end of the claim period, the value of business fuel is covered by an invoice.

  • The fuel prices per mile rates used to determine the business fuel cost remain unaffected. Customs publish their own rates but also accept rates set by recognised motoring agencies, eg RAC, AA etc.

  • The only practical change to the current system is that an invoice must be retained in support of a claim for VAT recovery - in the vast majority of cases, this will be a less detailed tax invoice.

It is nice to see that Customs will initially be operating a ‘light touch’ approach to these new rules.

Internet Links:

To read Customs full guidance go to:
Customs clarification

To view the advisory fuel rates go to:
Car fuel rates