CLIENT ALERT – 10 JUNE 2011

“ACTIVE ACCOUNTING AND TAX”

FURTHER INCREASE IN VAT RECLAIMABLE ON MILEAGE PAYMENTS

Although the “VAT” mileage rates were unusually updated on 1 March 2011, HMRC have continued to review the figures, which are based on actual fuel and related vehicle costs and have announced that instead of twice each year, the figures will be updated four times a year on 1 March, 1 June, 1 September and 1 December.

The table below shows HMRC’s updated “company car” mileage rates to be used from 1 June 2011, which represent the accepted figures for tax-free reimbursement of fuel costs to company car drivers for business mileage, assuming that there are no payments for petrol made other than in respect of business mileage claims.

These rates can also be used by all registered businesses as the gross of VAT rate on which VAT can be recovered as business input tax. This time there are increases across the board, except for the rate for an under 1600 c.c. diesel engine, which has decreased, because latest figures show these engines are more fuel-efficient.

The revised table shows previous rates as well to show the changes over a full year; the figures in brackets being the pence per mile in VAT that can be reclaimed.

Engine size	Petrol cost (per mile)				Engine size	Diesel cost (per mile)
	From 1 June 2011	1 Mar to 30 May 2011	1 Dec 2010 to 28 Feb 2011	1 June to 30 Nov 2010		From 1 June 2011	1 Mar to 30 May 2011	1 Dec 2010 to 28 Feb 2011	1 June to 30 Nov 2010
1400 cc or less	15p (2.5)	14p (2.333)	13p (1.936) until 4/1/11 then (2.167)	12p (1.878)	1600 cc or less	12p (2.0p) N.B decreased	13p (2.167)	12p (1.787) until 4/1/11 then (2.0)	11p (1.638)
1401 – 2000cc	18p (3.0)	16p (2.667)	15p (2.234) until 4/1/11 then (2.500)	15p (2.234)	1601 – 2000cc	15p (2.5)	13p (2.167)	12p (1.787) until 4/1/11 then (2.00)	11p (1.638)
over 2000cc	26p (4.333)	23p (3.833)	21p (3.128) until 4/1/11 then (3.500)	21p (3.128)	over 2000cc	18p (3.0)	16p (2.667)	15p (2.234) until 4/1/11 then (2.50)	16p (2.383)

To fit a full year’s information in the above table I have “dropped” the rates relating to LPG fuelled vehicles from this client alert; if you require this information please let get in touch and we will send it to you.

PAH planning point: As I have previously advised, the VAT reclaim on business mileage can amount to a significant figure and we strongly recommend that you consider reclaiming VAT on this basis if you have not previously done so.

Please note that although the maximum tax-free rate payable to staff members using their own cars increased from 6 April 2011 to 45p per mile for the first 10,000 business miles and 25p thereafter, THE VAT RECLAIM IS NOT AFFECTED BY THIS CHANGE.

This is because the VAT figures are calculated entirely separately based on actual costs, whereas the 45p figure is not – the Government knows the true cost of running a car is a lot more than that!

If you need any assistance with this, or have any queries on the matters referred to above, please do not hesitate to give either Kim Upton or me a call.

Our business grows mainly by referrals and we are always looking for new clients. I should appreciate it if you could let me know of any colleagues, customers or associates who may be interested in the way we do business.

Thank you

PAUL HILL