Most people know the 55p mileage rate. It's the figure HMRC uses to define the maximum you can pay employees per business mile without creating a taxable benefit, covering fuel, wear and tear, insurance, and everything else that comes with running a personal car for work.
What fewer people know is that HMRC also publishes a second mileage rate, updated quarterly, that exists specifically for working out the VAT on those same journeys. The two rates come from completely different parts of the tax system, and using the wrong one for the VAT calculation is why mileage VAT claims either come in wrong or don't get filed at all.
Two rates, two completely different jobs
The mileage rate most people know - 55p per mile for the first 10,000 business miles in a year, then 25p after that - is an income tax instrument, known as the Approved Mileage Allowance Payment (AMAP). It sets the most you can reimburse an employee tax-free for using their own car. The Advisory Fuel Rate (AFR) does a different job: it's a separate, fuel-only rate that HMRC updates every quarter, and it exists specifically to work out how much VAT you can reclaim on a business journey. The two come from different parts of the tax system, so the rate you use to pay an employee is not the rate you use to calculate the VAT.
Fuel, wear and tear, insurance, servicing and depreciation - every cost of running a personal vehicle for business, rolled into a single figure.
Fuel only. HMRC sets it quarterly by engine size and fuel type. It represents the one element of each mile that carries a real VAT charge, which makes it the only valid input for a VAT calculation.
VAT can only be reclaimed on costs where VAT was actually charged. Wear and tear carries no VAT. Insurance is exempt. The AMAP rate bundles all of these together, which makes it the wrong input for a VAT calculation. The AFR covers fuel only, and fuel is the one element of each mile where VAT has genuinely been charged.
To illustrate: for a petrol car with an engine between 1401cc and 2000cc, the AMAP rate is 55p and the Advisory Fuel Rate (effective 1 March 2026) is 14p.
How to calculate VAT on a mileage claim
If your business is VAT-registered and accounts for VAT in the normal way (rather than using the flat rate scheme), you can claim back some of the VAT built into the mileage you pay employees. The formula comes from HMRC's internal manual VIT55400:
Four steps in practice:
Go to gov.uk/guidance/advisory-fuel-rates. Match by fuel type (petrol, diesel, or LPG) and engine size. HMRC reviews rates on 1 March, 1 June, 1 September, and 1 December each year. Use the rate that was current on the date of the trip, not the date you're doing the paperwork.
This gives you the total fuel element in pounds for the period.
The AFR is a VAT-inclusive figure - the fuel it represents was bought at the pump with 20% VAT already in the price. To pull that VAT back out, you take 20/120 of the total, because the price was 120% (the fuel plus 20% VAT). 20/120 simplifies to 1/6, which is the same as dividing by 6. The result is the VAT you can reclaim.
Enter the amount in Box 4 of your VAT return (VAT reclaimed in the period).
| Reimbursement (AMAP) | VAT reclaim (AFR) | |
|---|---|---|
| Rate used | 55p/mile | 14p/mile |
| Business miles | 300 | 300 |
| Calculation | 300 × £0.55 | (300 × £0.14) ÷ 6 |
| Result | £165.00 reimbursed | £7.00 input tax |
The 55p figure plays no role in the VAT column. The reimbursement calculation and the input tax calculation run on separate tracks, using separate rates.
Sole directors who use their own car for business journeys follow the same process. For mileage purposes you are both the employer and the employee. Calculate using the AFR and claim the input tax through your company's VAT return.
What records you need
HMRC's VIT55400 sets out what must be kept for each employee making mileage claims.
- Mileage log Date, start and end points, purpose of the trip, and business miles. A spreadsheet works fine.
- Engine size for each vehicle Needed to match the correct AFR band for each employee's car.
- Rate paid and VAT reclaimed Keep a note of the rate you reimbursed at and the VAT figure you claimed back each period, so you can show HMRC how the number on your return was worked out if they ever ask.
- Fuel receipts Must be valid VAT invoices showing the supplier's VAT registration number and the VAT amount charged.
Receipts do not need to match specific journeys. Per VIT55400, they need to cover the VAT claim amount in aggregate for the period. A standard petrol fill-up of £65–70 shows roughly £10–11 of VAT. At 14p per mile, one receipt covers around 450 miles of claims. For most employees claiming under 500 miles per month, one receipt per VAT quarter is typically enough.
How charging location changes the calculation for electric vehicles
If any of your employees use personal electric cars for business journeys, there is an additional consideration the standard mileage VAT guidance doesn't cover: where the car charges affects both the rate and the VAT fraction.
HMRC now publishes two separate Advisory Fuel Rates for fully electric vehicles, effective 1 March 2026. The split exists because domestic and public electricity are taxed at different VAT rates.
Under HMRC's VAT Notice 701/19, electricity supplied to a domestic property is taxed at the reduced 5% rate. Electricity at public charging points is always standard-rated at 20%, regardless of how much is drawn. Those two VAT rates produce different fractions, and the difference in reclaimable VAT per mile is substantial.
| Home charging | Public charging | |
|---|---|---|
| AFR | 7p/mile | 15p/mile |
| VAT rate | 5% (reduced) | 20% (standard) |
| VAT fraction | 5/105 | 1/6 |
| VAT per mile | ~0.33p | 2.5p |
An employee who charges mainly at home generates less than one-seventh of the reclaimable VAT per mile of someone using public chargers. The VAT also sits inside a domestic energy bill rather than on a standalone receipt, which makes it harder to extract and document.
So before setting up a claim for any EV-driving employee, ask where they primarily charge. That answer determines which rate to use, which VAT fraction applies, and what documentation you'll need from them.
Advisory electricity rates follow the same quarterly schedule as petrol and diesel. Always check the current table at gov.uk/guidance/advisory-fuel-rates before running any calculation.
The flat rate scheme exception
Everything above assumes you reclaim VAT in the normal way. If your business is on the flat rate scheme, the rules are different: you can't reclaim the VAT on mileage at all.
That isn't an oversight. Under VAT Notice 733, the flat rate percentage you hand over is already set low to account for the VAT you would otherwise reclaim on purchases. Claiming mileage VAT on top would mean getting that same relief twice.
There is one exception: a single capital asset costing £2,000 or more (including VAT) can be reclaimed separately. Fuel doesn't qualify, because it's used up rather than kept.
If your mileage costs are significant and growing, that lost VAT is one thing worth weighing up when you review whether the flat rate scheme still makes commercial sense for your business.
Start reclaiming what you've been missing
Setting this up is straightforward. Find the current Advisory Fuel Rate for each engine type at gov.uk/guidance/advisory-fuel-rates, run (AFR × miles) ÷ 6 for each VAT period, and keep a mileage log and fuel receipts to back it up. For employees with EVs, check where they primarily charge before you pick the rate.
The bigger opportunity is often behind you. If earlier VAT periods have gone by without a claim, you're not necessarily out of pocket - HMRC lets you correct VAT return errors and recover under-claimed VAT going back up to four years.
Get the calculation set up correctly
If you want to confirm the calculation is correct, or find out what's recoverable from earlier returns, book a VAT advisory call with Monx. Mileage is just one piece - we advise on VAT across the board, from scheme choices and registration to reclaims and HMRC queries - and we run the numbers in the first conversation.
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