News
VAT on Mileage Allowances – What’s Changed and What Hasn’t
03 Jun 2026
Rachel Reeves recently confirmed that the approved mileage rate for employees using their own vehicle for business travel will rise from 45p to 55p per mile from 1 April 2026. It’s the first increase since 2011, and it’s prompted a lot of questions from clients about whether the VAT reclaim calculation changes too.
It doesn’t. The rate of reimbursement has gone up, but the method for calculating recoverable VAT stays exactly the same.
Here’s how it works in practice.
To reclaim VAT on mileage payments, your business needs employees to keep a mileage log (dates, destinations, miles travelled) and hold onto fuel receipts. You then use HMRC’s Advisory Fuel Rates – updated quarterly – to calculate the fuel element of the payment, and work out 1/6 of that figure to find the VAT.
From 1 June 2026, the Advisory Fuel Rates are:
Petrol
- Up to 1400cc – 14p per mile
- 1401–2000cc – 17p per mile
- Over 2000cc – 26p per mile
Diesel
- Up to 1600cc – 15p per mile
- 1601–2000cc – 17p per mile
- Over 2000cc – 23p per mile
If tracking individual engine sizes across your workforce feels like an administrative headache, HMRC does allow a simplification: you can apply the lowest rate across the board (currently 14p per mile) regardless of vehicle type.
For fully electric vehicles, the advisory rates from 1 June 2026 are 7p per mile for home charging and 15p per mile for public charging. Again, you can use the lower 7p figure as a flat rate if that’s easier. Hybrids are treated as petrol or diesel for these purposes.
The supporting documentation – mileage logs, fuel receipts – should be retained in your business records and the claims included on your regular VAT return.
If you’d like to talk through how this affects your business, get in touch with your usual WR Partners contact.
