Mileage Allowance

lizzy Registered Posts: 36 ? ? ?
I know this has been mentioned a lot before but please could someone clarify the following:-

1) Is it right that a sole trader with turnover above the VAT threshold cannot use the mileage allowance for tax purposes & must use actual cost?

2) Is the mileage allowance only for companies or sole traders when the vehicle is not owned by the business?

3) If a sole trader uses the mileage allowance but puts all fuel receipts through the business does the fuel/motor costs get recorded as drawings? And then VAT is reclaimed on the fuel part of the mileage allowance. I have read some where that the VAT reclaim on the mileage allowance is only for companies when employees are claiming for mileage & not for sole traders claiming. Is this correct & if so how does the sole trader reclaim VAT on the fuel when using the mileage allowance.

4) Is the P11D benefit in kind for private use of a vehicle & fuel just for employees of Ltd companies

5) Would HMR&C except that there wasnt any private use of a sole traders van when they own another private car? Or is there a set % to disallow?

Sorry to go on but this seems very confusing
Thanks in advance & hope this is all clear :001_smile:


    BIG WAL Registered Posts: 133 ? ? ?
    Hi Lizzy,

    Hope this helps to clarify matters.

    (1). I see no reason why the mileage allowance cannot be used whatever the turnover. As it's a mileage allowance, actual cost would surely not be an issue, as the allowance (supposedly) covers total cost including depreciation, insurance, repairs as well as fuel. However, strictly speaking, there should be a log of business mileage.

    2) Usually it's used by employees using their own car on their employer's business. It doesn't matter whether it's for a company or sole trader. In the past I have even used it for an employee of a charity.

    3) I don't think you can have both ways. As the allowance is supposed to cover total costs, including VAT on fuel, you surely can't then claim input VAT again. Therefore the full amount must be either drawings if it's for the business owner. The other way to do it is to put the fuel through as a motoring expense, reclaim the VAT, and use the Scale Charge for the private use element. But you can't do both.

    4) If fuel and/or a car is provided for an employee a BIK arises, for all employees, whether the business is incorporated or not. Again the same applies to charities. I do a P11D for a charity I'm involved in where the employee is provided with a car. However, he uses his own fuel, so for that is given the appropriate mileage allowance (dependent on engine size).

    5) Where a van is involved, it would normally be accepted to be all business use, and if VAT registered all VAT (fuel and repairs) would be claimed as input VAT. Never had a problem with this. Just need to watch the rules relating to BIK if van has private use by an employee however.

    Be interested to hear other views on this.
  • DaveP
    DaveP Registered Posts: 79 ? ? ?
    My opinions..

    1) Lizzy is correct. You cannot use the mileage method if turnover is above VAT threshold.

    2) It is only for employees or sole-traders who use their own car. It cannot be used for a company car.

    3) Yes, it will be drawings. If the VAT is an issue then use the actual method. VAT can then be reclaimed on all other motor costs with no private use adjustment at all.

    4) Just for employees.

    5) Private use of a van is a matter of fact. It is either used privately or it is not. Your client will need to show why it is not used privately and if they have another vehicle in the household then that will be a good argument to put forward.
  • lizzy
    lizzy Registered Posts: 36 ? ? ?
    Thank you both very much for making things clearer:001_smile:
Privacy Policy