The latest HMRC advisory fuel rates for company cars have been published this week. The rates take effect from 1 September but the old rates can be used for another month to help with the administration of mileage claims and reimbursements. Unsurprisingly we have yet again seen an increase across most bands and fuel types.
Don’t forget to charge and reclaim VAT
Dealers sometimes forget that these rates are VAT inclusive, which can affect the business in two ways.
Firstly, where you recharge private mileage to your employees you must account for output VAT on this “sale”. No invoice is required for this, so you can simply journal the relevant amount into your VAT workings in your DMS.
Secondly, if an employee submits an expense claim for business mileage, as long as they provide VAT receipts, the dealership can reclaim the VAT.
This also applies where the business journey is made in the employee’s own car, but with one important difference. The 45p and 25p rates used in these circumstances aren’t only meant to reimburse fuel costs, they also reflect the other costs of running your own car like insurance, repairs and buying it in the first place. Employers are only allowed to recoup the VAT on the fuel element and the accepted way to do this is to use the company car rates as the basis for the VAT claim and again obtain receipts.
You need to make this process as simple as possible and I always recommend ensuring your expense claim form has a VAT column and a requirement to cross reference to invoices. This is also good practice for all expense claims, not just those relating to fuel.
As with everything VAT related, having the correct documentation is key, so please contact me at michelle.malone@armstrongwatson.co.uk if you need some advice.
