I have a company whose employees claim all their petrol through the company, they put in their petrol receipts for the month and get reimbursed. And the company are claiming the VAT. These are for private cars, there are no company cars.
As fas as I was aware, the employees should be submitting mileage expense claims for all business mileage at .45 a mile, and that is tax free.
I've looked on HMRC and its not clear, but as far as I can tell, the way the company are doing it now, it should be put through the payroll as a taxable payment, and then the employee should claim the tax back on the mileage element directly.
Also, I believe the employer gives the employees lump sums in cash to cover future expenses, claims are submitted but they don't match the payments exactly!!
So, I'm a little unclear on how much personal fuel is being reimbursed here, but it's actually fairly irrelevant.
An employer is allowed to pay up to 45p per mile for all business miles travelled by an employee up to 10,000 miles. Any mileage in excess then employer can reimburse at a rate of 25p per mile.
If the employer would like to recover the VAT on this mileage then they may do so by using the 'fuel only' rate, which you can find here: http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm. These are the gross fuel costs per mile so, at current VAT rates, you would divide by 6 to get the VAT per mile in order to work out the amount of VAT to recover. It is important to note that, if recovering the VAT, the mileage claims must have be accompanies by a VAT receipt for fuel (regardless of the fact that the receipt amount won't match the expense claim amount; it just proves to HMRC that there was a purchase of fuel on which VAT was suffered).
Lump sums of cash paid to cover future expenses really isn't the best way of doing it; any payments in excess of actual expenses incurred are subject to Tax and NICs and, at the time of payment at least, if cash is paid in advance then, technically, 100% would be subject to Tax and NICs. The subsequent expenditure incurred by the employee would then be dealt with either on the monthly payroll (whereby an equivalent amount of their salary could be treated as expenses, thereby achieving tax relief) or by the employee completing a form P87. Neither of these are ideal and both represent an unnecessary admin burden.
Far better for the employees to submit their claims first and be paid in arrears. Don't forget that, unless there's a dispensation in place, any payments for expenses will need to be shown on a P11d, albeit that no NICs will be payable.
Mike thank you so much, you've made it clearer, and I do appreciate the time taken to reply.
As far as I can see there are months worth of expenses claimed as per the petrol receipts, with the employees no doubt going to claim that all their petrol cost are related to business (they are saying that they are travelling to different sites every day even though they come to the office). I have been told by an employee the company do it this way because it's cheaper then reimbursing the actual mileage.
So, do I go back to the beginning of the financial year and ask them to resubmit their claims with mileage claims? It will take hours and they wont be happy!
I haven't seen any mileage claims anywhere, this does worry me because it all seems like if the company were investigated then they would be in trouble!
