Mileage -v- Actual Cost

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in General accounting discussion
I attended an HMRC workshop this week which was run by a Revenue trainer and also attended by a VAT inspector. I'm afraid I started a bit of a cat fight between the two of them. I know mileage /motor costs has been discussed at great length on this forum but there is one item about which I cannot find a relevant notice.

The revenue lady says that a business (ltd or sole trader) can use mileage rates instead of actual cost until turnover reaches the VAT threshold. This figure is used as a guide and it doesn't matter whether the business is VAT registered or not.

The customs lady says that if the business voluntarily VAT registered and has a turnover of less than the VAT threshold, they can only use mileage rates if they are a Ltd Co.

So, a VAT registered sole trader with turnover below £64K can use mileage rates for tax, but not for VAT. In addition revenue only allows a change of method when there is a change of vehicle. This does seem to make record keeping unreaonably complicated for such small businesses.

The revenue lady was able to produce a document (albeit only a training manual) to prove her point but the Customs lady was unable to provide any evidence that only Ltd Cos are able to take advantage of the simpler mileage allowance method for smaller businesses.


Can anyone tell me where I can find a VAT notice which says that mileage allowance calculations are only allowable for Ltd Cos.

Thank you

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Mileage -v- Actual Cost

    I think the customs official is almost correct..

    From what I understand, the concession for taxpayers (individuals or corporates) below the VAT threshold to recover motor expenses by using the AMAP rates applies only in relation to income tax and has no bearing on the VAT position.

    Input VAT can only be recovered where it has been paid. There has been no payment of input VAT in the case of AMAP claims, hence no recoverability.

    However, in the case of an employee being reimbursed using AMAP rates then there is specific legislation in the form of a statutory instrument to allow recoverability by the employer, even though this is contrary to the EC 6th directive on VAT (but that is another story!).

    Therefore, I would suggest that the customs officer is not strictly correct to differentiate companies from individuals but would be correct to differentiate between owners and employers. Either way, a sole-trader cannot recover VAT on his own AMAP mileage claims.

    Sources are SI 1991/2306 and VAT notice 700/64/02 paras 8.6-8.8.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Mileage -v- Actual Cost

    Thank you Dean

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Mileage -v- Actual Cost

    Hi Dean,
    can you explain the reason of applying motor scale charges.
    I understand that if you apply them you are allowed to reclaim VAT on petrol both:on business miles and also private.

    I'm getting very confused about how to deal wiht the cars and petrol.

    What is the correct way to record this expensess in situation where:
    1) Ltd Co
    2) turnover over £1,000,000
    3) car bought through the business
    4) diesel
    5) we account for motor scale charges and reclaim VAt on every petrol bill.
    6) Co pays for petrol dircetly but sometimes director pays and gets reimbursed
    7) any private traveling is paid back at the rate of 9 pence per mile

    Do you think it is the correct way to deal with it?

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