How to do a VAT return in Ireland 

Filing a VAT return in Ireland might sound a bit daunting, but once you get to know the layout of the VAT 3 form, it becomes much more straightforward.  

Here’s how it works: 

Step 1. Know what you’re reporting 

The VAT 3 form is all about showing Revenue how much VAT you owe—or how much you’re reclaiming—for a specific VAT period. 

Step 2. Fill in the key fields

Here’s a breakdown of what each part means: 

Box	What it means	What to include
T1 – VAT on sales	VAT you owe Revenue	VAT on your sales, services, EU purchases, imports (using VAT Postponed Accounting), and services you received (as appropriate).
T2 – VAT on purchases	VAT you can reclaim	VAT on your business expenses, EU acquisitions, imports, and services received.
T3 – VAT payable	What you owe	If T1 is greater than T2, this is what you pay Revenue (T1 – T2).
T4 – VAT repayable	What you’re owed	If T2 is greater than T1, this is the amount Revenue owes you (T2 – T1).

It’s also important to note that if there’s no VAT due or reclaimable, just enter ‘0’ across T1 to T4—don’t write ‘nil’. 

Step 3. Add your EU figures

If you’ve traded with other EU countries, there are a few extra boxes to complete: 

Box	What it covers
E1	Value of goods sent to customers in the EU
E2	Value of goods received from EU suppliers
ES1	Value of services you’ve provided to EU customers
ES2	Value of services you’ve received from EU suppliers
PA1	Total value of imports using Postponed Accounting (including Customs value + duty)

Step 4. File via ROS 

All VAT 3 returns must be filed electronically using ROS.

Once everything’s filled in, double-check your figures, submit your return, and make any payments due.

There are a number of online methods available to you to make a payment to Revenue:  

• ROS Direct debit instruction 
• Single debit instruction (SDI) 
• Direct Debit Instruction (DDI) 
• Credit and debit cards 

Doing your VAT returns in Ireland doesn’t have to be a headache—especially when you’ve got Capture Expense in your corner 

Our platform takes the hassle out of managing receipts, tracking business expenses, and keeping accurate records, so when it’s time to file your VAT 3, everything you need is already in place. Book a demo today to see how it works.  

VAT is a key part of doing business in Ireland (like almost everywhere else in the world), but figuring out the right Irish VAT rates to charge (or claim back) can be trickier than it seems.   

With different VAT rates for different goods and services—not to mention exemptions—it’s easy to get lost in the details. 

Let’s break down the VAT rates in Ireland for 2025/26. 

What are the Irish VAT rates? 

Here are the Irish VAT rates, effective from 1 January 2025: 

Standard rate	Reduced rate	Second reduced rate	Livestock rate	Flat-rate compensation percentage for Farmers
23%	13.5%	9%	4.8%	5.1%

To see how the rates have changed from previous years you can visit Revenue.

Now let’s take a closer look at each Irish VAT rate.

The standard rate

The standard rate applies to most goods and services in Ireland.  

Here are some examples:  

• Electronics (e.g. smartphones, laptops, TVs) 
• Alcohol and tobacco products 
• Jewellery and watches 
• Cars and motorbikes 
• Household appliances (e.g. washing machines, fridges) 
• Cosmetics and beauty products 
• Solicitor services 

The reduced rate

The reduced rate applies to the following:

• Catering and restaurant supplies (excluding alcohol, soft drinks and bottled water) 
• Hot take-away food, and hot tea and coffee 
• Hairdressing services 
• Certain fuels 
• Repair services 
• Cleaning and maintenance services  
• Certain photographic supplies 
• The importation of certain works of art and antiques 
• Hire of horses 
• Tour guide services 

Here’s the complete list of goods and services subject to Revenue’s reduced VAT rate. 

The second reduced rate

The second reduced rate only applies to items like newspapers, digital publications, and facilities for sporting activities. 

The zero rate

Some goods and services incur no VAT.  

The zero rate applies to the following: 

• Exports 
• Certain food and drink 
• Certain oral medicine, non-oral medicine, and sanitary products 
• Certain animal feeding stuffs, certain fertilisers, seeds and plants used to produce food 
• Supply and installation of solar panels on private dwellings and recognised schools 
• Clothing and footwear appropriate to children under 11 years of age 

Here’s Revenue’s full list of goods and services that qualify for the zero VAT rate in Ireland. 

The livestock rate

The livestock VAT rate applies to animals that are usually bred for food, like cattle, sheep, and pigs. It also covers certain horses—specifically those used in farming or food production. 

Stay on top of Irish VAT rates with Capture Expense 

Our smart expense management platform automatically applies the correct VAT rate to every transaction, so you don’t have to worry about miscalculations or compliance issues. Book a personalised demo today to see Capture Expense in action.

Reclaiming VAT on expenses in the UK might not be the most exciting part of running a business, but for VAT-registered companies, it’s an important one.  

Whether you’re new to VAT on expenses or already have some experience with the process, you’ve come to the right place. 

Let’s look at all the ins and outs of reclaiming VAT on expenses in the UK.  

The VAT rates and threshold in the UK 

If you own a business and your taxable turnover goes over £90,000 (the VAT threshold in the UK for 2025) in any 12-month period, you’ll need to register for VAT.

Once you’re VAT registered, you’ll be able to charge VAT on your sales and reclaim the VAT you’ve paid on eligible business expenses.

Here are the VAT rates in the UK for 2025/26:  

	% of VAT	What the rate applies to
Standard rate	20	Most goods and services
Reduced rate	5	Some goods and services, e.g. children’s car seats and home energy
Zero rate	0	Zero-rated goods and services, e.g. most food and children’s clothes

And here are some of the goods and services that fall under the standard UK VAT rate for 2025/26: 

Goods and services	UK VAT rate
Alcoholic drinks	20%
Soft drinks	20%
Mineral water	20%
Sports drinks	20%
Hot takeaways	20%
Confectionery	20%
Ice cream	20%
Catering	20%
Most clothing intended for adults	20%
Flowers and seeds	20%

When you don’t charge VAT

Some goods and services are VAT-exempt, meaning you don’t add VAT—even if you’re registered. 

Some examples include: 

• Financial services: loans, mortgages, investments 
• Healthcare and medical treatments: dental care, eye tests, ambulance services 
• Education and training: private tutoring, school fees, exam fees 
• Charity services: grant funding, volunteer expenses, donations  

You can check HMRC’s full list of exempt goods but remember—while you won’t charge VAT on these, you still need to record them properly. 

When you can and can’t claim VAT on expenses in the UK  

To reclaim VAT on expenses in the UK, your costs must be wholly and exclusively for business use, and you’ll need a valid VAT invoice from a VAT-registered supplier. 

What you can claim VAT on

• Office essentials: such as desks, office chairs, computers, Internet and broadband services. 
• Travel expenses: such as parking fees, motorway tolls, and car hires.  
• Mileage expenses: VAT on fuel bought for business trips (more on that later). 
• Team entertaining: such as summer staff parties, team lunches, and reward events (provided they’re open to all employees). 

What you can’t claim VAT on 

• Client entertainment: things like extravagant lunches with clients or rounds of golf with potential customers.  
• Non-business purchases: anything with a personal use element doesn’t qualify—you can’t claim VAT on your morning coffee just because you answered work emails while drinking it! 

How to claim VAT on mileage expenses in the UK

If you use your car for business travel, you may be able to reclaim VAT on your mileage expenses—but you’ll need to follow a few key steps:

Step 1. Keep your fuel receipts 

To reclaim VAT, you need proof of purchase, so make sure to keep all fuel receipts. These should be VAT invoices from petrol stations showing the total cost and the VAT amount.  

Step 2. Track your business mileage 

Since VAT can only be reclaimed on fuel used for business purposes, you’ll need a detailed mileage log.

For each trip, you should record:

• The date of travel 
• The starting point and destination 
• The reason for the journey (e.g., client meeting, site visit) 
• The number of miles driven 

Step 3. Use HMRC’s advisory fuel rates 

To calculate how much VAT you can reclaim, you’ll need to check HMRC’s advisory fuel rates. These rates vary depending on your car’s engine size and fuel type, so be sure to apply the correct one. 

Step 4. Calculate the fuel cost for business use 

Multiply your business mileage by the appropriate fuel rate.  

For example, if your advisory fuel rate is 15p per mile and you drove 200 business miles, the calculation would be: 

200 miles × £0.15 = £30.00 (fuel cost for business trips) 

Step 5. Work out the VAT reclaim 

Since VAT is already included in fuel prices, you can extract the VAT portion by dividing the total fuel cost by 6 (since VAT at 20% means 1/6 of the total price is VAT). 

£30.00 ÷ 6 = £5.00 reclaimable VAT 

At the end of the quarter, add up all your eligible mileage claims and include the total in your VAT return. 

How to claim VAT on fuel expenses in the UK

There are two main ways to reclaim VAT on fuel expenses in the UK: 

1. Reclaim all the VAT paid on fuel purchases and pay the appropriate fuel scale charge for your vehicle.  
2. Claim VAT only for the fuel used during business trips by maintaining thorough mileage records to demonstrate usage exclusively for business purposes.  

How to claim VAT on staff entertainment in the UK

If you’re planning a team event and hoping to reclaim the VAT, there are a few things you need to keep in mind.  

Let’s say you organise a company away day at an outdoor adventure park to boost team morale. To claim back the VAT on the cost, you’ll need some key pieces of evidence: 

• A VAT invoice: this should be issued by the supplier and include key details such as their VAT registration number, the date of the event, a breakdown of costs, and the VAT amount charged. 
• Proof it was for your employees: attendance records, a staff email invitation, or an internal memo confirming the event was open to all employees—not just senior management or directors. 
• A clear business purpose: documentation such as an event agenda, HR communications, or a policy statement explaining how the event contributes to team building, employee wellbeing, or company culture. 

How to reclaim VAT on expenses in the UK in three easy steps

Step 1. Keep your receipts and invoices

Let’s say you’ve just bought 5 new laptops for your business for £6,000, which includes £1,200 VAT. That VAT is money you can claim back from HMRC, but only if you have a valid VAT invoice from the supplier.  

Step 2. Add it to your VAT return 

Every quarter, you’ll submit a VAT return to HMRC.

In it, you’ll:

• List your total sales and the VAT you’ve charged customers 
• List your business purchases and the VAT you’ve paid 
• Work out the difference—this is what you either owe or can reclaim 

Step 3. Submit and get your VAT back 

Once your VAT return is ready, send it off to HMRC.  

If you’ve paid more VAT on expenses than you’ve charged on sales, HMRC will refund you the difference. If not, they’ll deduct it from what you owe. 

Just make sure to submit your return on time to avoid any penalties.  

Capture Expense automatically calculates and applies the correct VAT rate to all your transactions 

Whether you’re dealing with business purchases, travel expenses, or any other costs, our platform makes sure that VAT is accurately tracked and recorded.  

Book a personalised demo today to see Capture Expense in action.  

 

Have you ever asked yourself if you can claim VAT on business entertaining? 

The answer isn’t always straightforward! HMRC’s VAT rules treat staff entertainment and client entertainment very differently. Some expenses—like team-building events for employees—qualify for VAT recovery, while wining and dining clients usually doesn’t.  

Let’s break down the key differences between staff and business entertainment expenses and clear up which types of expenses you can and can’t claim VAT on. 

What’s the difference between staff and business entertainment expenses? 

The key difference comes down to who you’re entertaining and why. 

Staff entertainment is all about your employees. Think team-building days, Christmas parties, or a summer BBQ to reward hard work. The goal? Boost morale, encourage teamwork, and make your employees feel valued. 

Business entertainment on the other hand, is focused on clients, prospects, or suppliers. This includes things like taking a potential client out for dinner, treating them to a sports event, or organising a fancy networking drinks reception. The aim here is to strengthen relationships and potentially win more business. 

Can you claim VAT on business entertaining?

In most cases no. You can’t reclaim VAT on business entertainment expenses like client dinners, tickets to events, or free hotel stays. HMRC sees these as perks rather than costs that are wholly and exclusively for business purposes—so they don’t qualify for VAT recovery. 

That said, there are some exceptions. For instance, if you’re hosting an overseas client and providing reasonable hospitality—like tea, coffee, and sandwiches during a business meeting—you can reclaim the VAT. The key is that the hospitality must be for an overseas client, it must be directly linked to business discussions, and it mustn’t be excessive. 

Think of it this way, if you take an overseas client to a Michelin-starred restaurant with an à la carte menu, HMRC would likely see it as entertainment rather than a business necessity—so no VAT recovery. But if you provide a simple working lunch in the office, that’s more acceptable. 

Can you claim VAT on staff entertainment? 

Yes, you can claim VAT on staff entertainment—but only if certain conditions are met. 

Think of it like this, if you throw a Christmas party for all your employees to thank them for their hard work, you can reclaim the VAT on the cost of the event. That’s because the entertainment is for a business purpose (staff morale and appreciation), and it’s available to all employees—not just the directors or business owners. 

However, if a company director takes a few clients and a couple of senior managers out for a fancy dinner in London, that wouldn’t qualify. Even though some employees are there, they’re acting as hosts to non-employees, which means the VAT on that meal isn’t recoverable. 

Can you claim VAT on client entertainment? 

No, you generally can’t claim VAT on client entertainment. 

Let’s say you take a potential client out for dinner to impress them and hopefully win some business. Even though this is a common part of doing business, HMRC sees it as an unnecessary expense rather than a business essential—so you can’t reclaim the VAT on that meal. 

However, there are some grey areas. For example, if your company sponsors a big industry conference where clients are entertained, but you also get significant brand exposure, you might be able to reclaim some VAT.  

What details do you need to claim VAT on business entertaining? 

By now you know that the only type of business entertainment where VAT can be reclaimed is staff entertainment. 

To claim VAT on staff entertainment, it’s important to keep accurate records—this way, if HMRC ever has any questions, you’ll be able to show that the expenses meet the necessary criteria. 

Let’s say you throw a team-building day for your employees at a go-karting track. To reclaim the  

VAT, you’d need: 

1. VAT receipts: the venue should provide a proper VAT invoice showing the total cost and VAT amount. 
2. Proof it was for your employees: a guest list or internal invite showing it was a staff-only event (and not just for directors). 
3. Business purpose: something to show that the event was for team building, not just a fun day out.  

It’s also a good idea to digitise your receipts and keep them on file for at least four years—just in case HMRC wants to check your VAT return later.  

Keep track of all your business, staff and client entertainment expenses

With Capture Expense, you can effortlessly track, digitise, and apply the correct VAT rates to all your business, staff, and client entertainment expenses.  

Stay HMRC-compliant, save time, and never miss a reclaim opportunity. Book a personalised demo today and see how easy expense management can be! 

Imagine this; you’re a project manager heading to Edinburgh for an important business meeting. You’ve booked a train, lined up your hotel stay, and are preparing to grab meals on the go.  

These are all necessary expenses for your trip. But did you know that in the UK, you might be able to claim these costs back under what’s called a “subsistence allowance”?  

Whether you’re footing the bill yourself or your company is reimbursing you, it’s important to understand what qualifies as a legitimate business expense and how to claim it properly. 

Let’s get you ready for your next business trip by breaking down the key things you need to know about subsistence allowance in the UK. From what’s included to what’s not, and how to report a claim, we’ve got you covered—so you can focus on your work without worrying about out-of-pocket expenses. 

What is a subsistence allowance in the UK?

Subsistence allowance in the UK refers to expenses that employees can claim for costs incurred while traveling for work, such as meals, accommodation, and travel.  

HM Revenue and Customs (HMRC) allows these claims to cover necessary, business-related expenses, provided they meet specific guidelines and are not part of the employee’s regular, everyday costs. 

When can you claim subsistence allowance in the UK?

Let’s stick with the same example as before. As a project manager, your job involves travelling to meet clients across the UK.

One day, you have a meeting scheduled in Manchester, (your usual office is in Birmingham). To make it to your meeting on time, you catch an early train, grab breakfast on the go, and then later buy lunch while you’re in Manchester before heading back.

Now, can you claim these food expenses as a subsistence allowance? Yes, in this scenario, you likely can!

Here’s why:

1. The expense is necessary for your work duties: travelling to Manchester is part of your job responsibilities, so any reasonable costs incurred while doing this are necessary for work.
    
2. It’s an additional cost: if you hadn’t been travelling for work, you wouldn’t have had to spend extra money on breakfast and lunch in a different city. These are costs over and above your usual daily expenses.
    
3. You have receipts: always keep your receipts. Whether it’s a coffee shop receipt for breakfast or a restaurant bill for lunch, they’re essential to verify your claim.
    
4. You’re away from your usual place of work: since you’re not working from your Birmingham office and had to travel to Manchester, these expenses fall under the criteria of being away from your normal workplace.

It’s important to note that the costs you claim must be reasonable. For instance, a modest lunch in Manchester would be acceptable, but a lavish dinner at a high-end restaurant might raise eyebrows with HMRC.

Are there any exceptions? 

Yes. Here are some examples of situations where you might be exempt from claiming a subsistence allowance in the UK:

• When your employer provides meals (during the trip) 
• When the trip is for personal reasons (even if there’s a minor business component) 
• When the expenses are excessive 

The subsistence allowance rates in the UK 

Here are HMRC’s daily subsistence allowance rates in the UK for 2025:  

Meal subsistence rates in the UK

Employee subsistence rate	Maximum limit
One meal (5 hour) ceiling	£5
Two meal (10 hour) ceiling	£10
Three meal (12 hour) ceiling	£15
24-hour ceiling	£25

Accommodation rates in the UK

Location	Maximum limit
London	£130
Bristol	£100
Warrington	£90
Reading	£85
All other locations (UK based)	£75

What about mileage rates? 

While your employees can’t claim back the actual hours they spend driving for work, they can claim mileage allowance to cover the costs of using their own vehicle. HMRC’s mileage allowance rates are designed to compensate for fuel, wear and tear, and other expenses, helping employees offset the costs of business travel.

Here are the approved mileage rates for 2025: 

Type of vehicle	10,000 miles	10,000 + miles
Cars and vans	45p	25p
Motorcycles	24p	24p
Bikes	20p	20p

The subsistence allowance rates outside the UK

If you’re travelling abroad for work, HMRC provides subsistence rates in local currencies for different countries and cities. 

Here are some of the most popular destinations in 2025: 

Country	Expense	Rates
United States	Meals	$21 – $34.50
	Accommodation	$216 – $239
Canada	Meals	$38.50 – $47
	Accommodation	up to $224
European countries	Meals	€22 – €40
	Accommodation	averages €199.50
Singapore	Meals	SGD 91.50
	Accommodation	SGD 318
Hong Kong	Meals	HKD 292.50
	Accommodation	HKD 2376.50

How to report subsistence allowance spending to HMRC 

Reporting subsistence allowance to HMRC is fairly straightforward and follows the same process as reporting other work-related expenses.  

At the end of the tax year, you need to complete a P11D form for each employee who received reimbursements for expenses (like meal allowances). Additionally, a P11D(b) form may be required to summarise the total expenses and calculate any necessary Class 1A National Insurance contributions. 

It’s also worth noting that from April 2026, all benefits in kind (BIK)—except for loans and living accommodation—must be reported and taxed through payroll. Which means that you’ll no longer be able to process BIKs through P11Ds.  

To make sure everything runs smoothly, you should have a clear process in place for collecting, verifying, and recording your expenses.  

Say hello to Capture Expense 

Want to keep all your expenses, including subsistence allowance in the UK, organised and in one place?  

Book a demo with Capture Expense today and see how easy it is to submit, track, and manage your expenses—saving you time and keeping you compliant with HMRC. 

When it comes to claiming VAT on travel expenses, the key is knowing what’s eligible and what’s not. While you can reclaim VAT on things like hotel stays, car hire, and fuel for company vehicles, other costs—such as flights and train tickets—are zero-rated, meaning there’s no VAT to reclaim.  

You probably have lots of questions around what you can and can’t claim. Luckily for you, we have all the answers. 

What is VAT on travel expenses? 

VAT on travel expenses refers to the Value Added Tax (VAT) that’s applied to costs incurred during business-related travel. This can include expenses like transportation, accommodation, meals, and other travel-related services.  

For businesses, VAT on travel expenses can often be reclaimed if the travel is for work purposes, provided the expenses are appropriately documented and fall within VAT guidelines.  

However, VAT rules can vary depending on the country or region, and some travel expenses may be exempt or have different VAT rates. 

What business travel expenses can you claim VAT on? 

When you’re travelling for business in the UK, you can usually reclaim VAT on certain expenses, as long as they’re for work purposes and you have valid VAT receipts.  

Here’s a list of the business travel expenses can you claim VAT on:  

1. Transport costs:

• Car hire 
• Fuel for company vehicles 
• Taxis and other on-demand transportation services
• Public transport (trains, buses, flights)

2. Accommodation:

• Hotel stays 
• Bed and breakfast (B&B)
• Serviced apartments 

3. Meals and drinks:

• Meals and drinks (breakfast, lunch and dinner) 
• Hotel meals
• Working lunches/dinners  

4. Extras and incidentals:

• Parking fees 
• Motorway tolls 
• Wi-Fi and Internet charges
• Business-related subscriptions 

5. Other business travel expenses:

• Business gifts (provided they comply with HMRC gift-giving guidelines) 
• Conference and seminar fees 
• Business equipment and supplies (laptops or office materials purchased for use during business travel) 

And when it comes to employee vs. client travel 

Employee travel: let’s say an employee travels to a conference on behalf of the business. The company books the employee’s flights and hotel accommodation and incurs VAT on these expenses. As this travel is for business purposes, the company can reclaim the VAT on the flights, hotel stays, and any other associated expenses. 

Client travel: now, suppose the same company arranges travel for a client to attend the same conference. The company books and pays for the client’s flights and accommodation and then reimburses the client for these costs. Here, VAT on these travel expenses isn’t recoverable (unless the expense is part of a business transaction that directly relates to the company’s taxable services). 

Can you claim VAT on train travel?

No, you can’t claim VAT back on train tickets. That’s because train fares in the UK are zero-rated for VAT, meaning no VAT is charged in the first place—so there’s nothing to reclaim. 

Think of it this way, imagine you’re travelling from London to Manchester for a business meeting, and you book an advance train ticket for £80. When you check the receipt, you’ll see no VAT has been added. Since VAT wasn’t charged, you can’t claim it back. 

Can you claim VAT on air travel?

No. Just like train tickets, flights are zero-rated, which means no VAT is charged to begin with. 

Let’s say you book a return flight from London to Edinburgh for a business trip, and the ticket costs £150. When you check the receipt, you won’t see any VAT added. 

Before attempting to reclaim VAT on any expense, always check your receipts. If there’s no VAT listed, there’s nothing to claim! 

Can you claim VAT on mileage?

Yes, you can claim VAT on mileage expenses but only on the fuel portion of the mileage allowance—not on the part covering ‘wear and tear’. 

Say you’re a VAT-registered business, and you reimburse an employee for driving 100 miles in their own car for work. You pay them 45p per mile, (which is the standard HMRC mileage rate for 2024/25). However, you can’t reclaim VAT on the full 45p—only on the fuel element. 

To work this out, you’ll need HMRC’s advisory fuel rates, which are updated every quarter. If the fuel portion is, say, 14p per mile, you can reclaim VAT on that part, not the full 45p. 

So, before making a claim, check the latest advisory fuel rates and make sure you keep accurate records, including mileage logs and fuel receipts. 

Can you claim VAT on foreign travel expenses?

Yes, you can reclaim VAT on foreign travel expenses—but only on certain costs, and the process is different from claiming UK VAT. 

Imagine you’re on a business trip to Germany. You stay in a hotel, rent a car, and take clients out for dinner. The hotel and car hire include German VAT (Mehrwertsteuer), and in most cases, you can apply for a refund on these expenses. However, the restaurant bill isn’t reclaimable, as Germany doesn’t allow VAT refunds on meals. 

You can’t reclaim this foreign VAT through your usual UK VAT return. Instead, you’ll need to apply for a refund through the EU VAT refund scheme (if the country is in the EU) or a similar process for non-EU countries. The rules vary, so it’s important to check what’s eligible in each country. 

Are you struggling to claim VAT on travel expenses?  

Capture Expense takes the guesswork out of VAT claims by automatically applying the correct rates and making sure your records are 100% HMRC-compliant. Book a personalised demo today and see how easy it is to increase your VAT claim success by 34% 

Did you know 43% of senior finance leaders are very concerned about HMRC inspections? 

That means that nearly half of all CFOs, Finance Directors, and Heads of Finance feel apprehensive or underprepared for an unexpected visit from the taxman. 

And maybe that’s partly because expense compliance in the UK is complex, and can be time-consuming. But the trick is having a robust policy in place to make staying compliant just that little bit easier.

Now before you can create your company expense policy, and implement processes for complying with HMRC, you need to know what’s expected of you.

Let’s shine some light on the expense compliance areas to focus on to make sure you keep the taxman at bay. 

What do HMRC expect from you?

If you have an HMRC compliance check, they’ll review your entire expense compliance process for non-compliance with HMRC expense regulations.  
 
Their primary focus is to make sure that you have:  
 
• A clear and enforced policy  
• Appropriate approval processes  
• Comprehensive documentation  
• Appropriate checks and controls  
• Full compliance with Tax and VAT requirements  
• A robust and secure payment process

The VAT rates in the UK

VAT (or Value Added Tax) is a tax added to the price of most goods and services in the UK.

If you’re a business owner, you’ll need to register for VAT if your taxable turnover exceeds £90,000 in a 12-month period. 

Once registered, you’ll charge VAT on your sales and reclaim the VAT you’ve paid on your purchases.  

Here are the VAT rates for 2025: 

	% of VAT	What the rate applies to
Standard rate	20	Most goods and services
Reduced rate	5	Some goods and services, e.g. children’s car seats and home energy
Zero rate	0	Zero-rated goods and services, e.g. most food and children’s clothes

 When you mustn’t charge VAT

There are certain goods and services that are exempt from VAT. This means you won’t charge VAT on these items — even if you’re VAT-registered.

Some examples of VAT-exempt items include:

• Financial services: banking, insurance, investments. 
• Healthcare and medical treatments: doctor’s visits, prescriptions. 
• Education and training: school fees, university tuition. 
• Charity services: charitable donations, fundraising events. 

You can also access HMRC’s full list of VAT exempt goods. 

Remember, even though you don’t charge VAT on these items, you still need to keep track of them in your business records. 

Expense compliance when it comes to vehicle mileage 

Did you know that your employees can claim back time spent traveling for work? 

That’s right, by following HMRC’s mileage rates, you can empower your employees to claim back vehicle expenses incurred for business purposes.

Here are the mileage allowance rates for 2025:

Type of vehicle	10,000 miles	10,000 + miles
Cars and vans	45p	25p
Motorcycles	24p	24p
Bikes	20p	20p

 What are HMRC’s advisory fuel rates?

HMRC’s advisory fuel rates apply to company-owned cars and serve two main purposes:

1. Reimbursing your employees for business travel expenses incurred in a company car.  
2. Managing reimbursements when your employees use a company car for personal travel and need to repay the business.  

Here are the advisory fuel rates for 2025:

Petrol

Engine size (cc)	Mean MPG	Fuel price (per litre)	Fuel price (per gallon)	Rate per mile	Advisory fuel rate
Up to 1400	51.0	138.7 pence	630.7 pence	12.4 pence	12 pence
1401 to 2000	42.3	138.7 pence	630.7 pence	14.9 pence	15 pence
Over 2000	27.1	138.7 pence	630.7 pence	23.3 pence	23 pence

Diesel

Engine size (cc)	Mean MPG	Fuel price (per litre)	Fuel price (per gallon)	Rate per mile	Advisory fuel rate
Up to 1600	56.9	146.1 pence	664.3 pence	11.7 pence	12 pence
1601 to 2000	49.3	146.1 pence	664.3 pence	13.5 pence	13 pence
Over 2000	38.0	146.1 pence	664.3 pence	17.5 pence	17 pence

 LPG (Liquefied Petroleum Gas) 

Engine size (cc)	Mean MPG	Fuel price (per litre)	Fuel price (per gallon)	Rate per mile	Advisory fuel rate
Up to 1400	40.8	98.3 pence	446.9 pence	10.9 pence	11 pence
1401 to 2000	33.8	98.3 pence	446.9 pence	13.2 pence	13 pence
Over 2000	21.7	98.3 pence	446.9 pence	20.6 pence	21 pence

 Electric

Electrical efficiency — miles per kilowatt-hour	Domestic electricity cost (per kilowatt-hour)	Rate per mile	Advisory electric rate
3.57	25.24 pence	7.06 pence	7 pence

 How to reclaim VAT on fuel

If you’re VAT-registered, you can often reclaim the VAT you’ve paid on fuel costs.

However, there are a few conditions:

• Business use: the fuel must be used for business purposes. This could be for company vehicles or employee reimbursements for business mileage.
• Accurate records: you’ll need to keep detailed records of your fuel purchases, including receipts and mileage logs. 

There are two ways you can reclaim VAT on fuel:

1. Reclaim all the VAT paid on fuel purchases and pay the appropriate fuel scale charge for your vehicle.  
2. Claim VAT only for the fuel used during business trips by maintaining thorough mileage records to demonstrate usage exclusively for business purposes.  

Expense compliance around carbon reporting

From July 2025, you’ll be required to provide more detailed information about your sustainability practices and climate related risks. 

This means if your business meets certain criteria, such as having a significant turnover (exceeding £500 million) and employee count (at least 500), you’ll be required to report on your carbon emissions.

You’ll need to:

• Track your carbon footprint: monitor your direct emissions (Scope 1) and indirect emissions from purchased energy (Scope 2).
• Assess your supply chain: evaluate the carbon footprint of your suppliers and consider ways to reduce emissions throughout your supply chain (Scope 3).
• Set reduction targets: establish clear targets for reducing your carbon emissions and develop a plan to achieve them. 

What you need to know about tax compliance 

When it comes to tax compliance, we know the number one question on your mind: are reimbursed expenses taxable in the UK? 
 
The short answer is no. If expenses are wholly, exclusively, and necessarily incurred in the performance of your job, they aren’t taxable. 
 
For example, if you’re a salesperson and your job requires you to travel to meet with clients. Any expenses you incur, such as travel costs, accommodation, and meal expenses, can usually be reimbursed tax-free. 

Are there any exceptions? 

Yes, if the expenses aren’t classed as “work-related”, or if they’re seen as providing a personal benefit. 
 
Here are a couple of examples:   

• Excessive or extravagant expenses: if your expenses are deemed unreasonable or excessive, they may be considered taxable income.  
• Personal expenses: reimbursements for personal expenses, such as commuting to and from work, are generally taxable. 

We know it can be tricky, but knowing the difference between deductible and non-deductible expenses can significantly impact your financial planning and tax liability.  

What you need to know about corporation tax

If you’re setting up a limited company in the UK, you’ll need to register for corporation tax within three months of starting your business.

This tax is applied to your company’s profits, investments, and any gains from selling assets.

Here’s a breakdown of the 2025 rates:

• Small profits rate (companies with profits under £50,000): 19%
• Main rate (companies with profits over £250,000): 25%

What you need to know about National Insurance Contributions   

National Insurance Contributions (NICs) are essentially taxes on earnings that help fund state benefits like the NHS and State Pension.  
 
If you’re a business owner in the UK, you’ll need to understand the different types of NICs and how they apply to your business:

Class 1 NICs

• Employee NICs: deducted from your employees’ wages. 
• Employer NICs: paid by you, on top of your employees’ wages.

Class 1A NICs

Class 1A NICs are a type of tax that you pay on certain benefits you provide to your employees.

These benefits, often called “Benefits in Kind (BIK)” can include things like:   

• Company cars: if you provide your employees with company cars, you’ll need to pay Class 1A NICs on the benefit value of the car.  
• Private healthcare: if you offer private health insurance to your employees, you’ll also need to pay Class 1A NICs on the cost of the insurance.  
• Accommodation: if you provide accommodation for your employees, such as a company flat or house, you’ll need to pay Class 1A NICs on the benefit value of the accommodation. 

Why you need to create an expense policy 

A company expense policy is like a roadmap to expense compliance. It outlines what expenses are reimbursable, how much you can claim, and what documentation you need to provide (for your company or HMRC).

By having a clear and concise policy in place, you can make sure that your employees understand the rules and submit accurate expense claims. 

To help you get started you can download our free expense policy template. 

How to report your expense reimbursements to HMRC

You have a couple of options to choose from when reporting the reimbursement of expenses: 

• You can use a P11D form to report your expenses and benefits to HMRC at the end of the tax year. 
• You can opt for payrolling, where you include the value of the expenses and benefits in the employee’s pay.  

It’s worth noting that starting from April 2026, all BIKs that you provide (except for loans and living accommodation) will have to be reported and taxed through payroll.

Your 6-step guide to HMRC expense compliance

1. Understand the rules

• Familiarise yourself with HMRC’s guidelines on allowable expenses. 
• Stay updated: keep an eye on any changes to tax laws and regulations.

2. Keep detailed records

• Keep all receipts for expenses — no matter how small. 
• Maintain a mileage log: if you use your car for business, keep a detailed record of your mileage. 
• Document the business purpose: explain why each expense was necessary for your job.

3. Categorise your expenses

• Clearly distinguish between expenses incurred for business purposes and those for personal use. 
• Use appropriate expense categories (e.g., travel, accommodation, meals, office supplies).

4. Claim the right amount

• Make sure that your expense claims are in line with HMRC’s rules and regulations. 
• Only claim for reasonable and necessary expenses.

5. Submit your claims on time

• Follow your company’s specific procedures for submitting expense claims. 
• Don’t delay in submitting your claims to avoid potential issues. 

6. Choose an expense management system that fully complies with HMRC

A sophisticated expense management system like Capture Expense will help you automate the process, reduce errors, and comply with HMRC regulations.  

You need to Look for a system that can: 

• Automatically calculate mileage claims based on HMRC rates 
• Generate accurate expense reports 
• Integrate with your accounting software 
• Provide real-time insights into your spending habits 
• Offer robust audit trails for expense compliance purposes 

Do you still need help with expense compliance?

Book a personalised demo today and we’ll help you with all your expense compliance needs. There’s not a mileage query we can’t handle, or a tax problem we can’t solve.

Did you know that business travel in the UK hit a record £68 billion in 2024? Running a business means keeping a close eye on every opportunity to increase sales and manage company spend wisely. One area where you could see substantial savings is by claiming VAT on mileage.  

Many business owners are unaware that VAT can be reclaimed on business-related travel, but with the right guidance, you can make the most of this opportunity. 

Let’s look at who can claim VAT on mileage expenses and how to make a claim.   

Who can claim VAT on mileage?

Think of claiming VAT on mileage like getting a refund on part of your fuel costs—but only if you follow the rules. 

Here they are:

Your company must be VAT–registered 

Being VAT-registered means you charge VAT on your sales and can reclaim VAT on your business expenses. 

If your business isn’t VAT-registered, you can’t reclaim VAT on anything, including mileage.  

It must be for business use only 

Your trip has to be 100% work-related.

If you’re: 

• Driving to meet a client? That counts.  
• Going to a networking event? Absolutely.   
• Taking a detour to grab a coffee with a friend on your way home? Nope, that part doesn’t count! 

Let’s break it down with a real-world scenario

Imagine you run a small IT consulting business, and you’re VAT-registered.  

You often drive to meet up with clients, attend tech conferences, and visit suppliers for new equipment. Since all these trips are for business purposes, you can claim VAT on the mileage. 

Now, let’s say you also use the same car for personal trips—like going on holiday or picking up groceries. That mileage can’t be included in your VAT claim because it’s not business-related. 

What do you need to make a successful claim? 

First and foremost, you need to keep accurate records. So, every time you drive for work, you should keep track of:

• The date. 
• Where you started and where you went. 
• The reason for the trip. 
• How many miles you covered. 

You also need fuel receipts that show VAT details—a credit card statement alone won’t cut it.  

Your step-by-step guide to claiming VAT on mileage

Let’s imagine Sarah runs a small consulting business and frequently travels to meet clients. She wants to claim VAT on her mileage expenses.  

Here’s how she does it: 

Step 1. Gather fuel receipts 

Sarah makes sure to keep all her fuel receipts whenever she fills up her car. Since VAT can only be reclaimed on fuel for business use, having VAT invoices from petrol stations is essential. 

She stores them in a folder and uploads digital copies to her expense management platform to stay organised. 

Step 2. Track business mileage 

Sarah keeps a detailed mileage log. For every business trip, she records: 

• The date of the journey. 
• The journey details (i.e., from her office in Manchester to a client’s premises in Liverpool). 
• The purpose of the journey (i.e., client meeting). 
• The distance travelled (80 miles round trip). 

She uses Capture Expense’s AI-powered matching tool to accurately categorise her expenses, making sure she only claims VAT on business mileage.  

By maintaining an accurate mileage log, she can provide evidence for all her business-related journeys if HMRC ever needs verification. 

Step 3. Apply the correct advisory fuel rate 

Sarah drives a petrol car with a 1.6-litre engine. Checking HMRC’s advisory fuel rates for 2025, she finds that the applicable rate is 15p per mile. 

Step 4. Calculate the fuel cost for business use

She multiplies her business miles (see Step 2) by the advisory fuel rate: 

80 miles × £0.15 = £12.00 (fuel cost for this trip). 

If Sarah completes multiple business trips in a month, she repeats this calculation for each journey and then adds the totals together.  

Step 5. Work out how much VAT to reclaim 

VAT is included within the fuel cost, so to extract the reclaimable amount, Sarah divides by 6 (since VAT at 20% means 1/6 of the total price is VAT): 

£12.00 ÷ 6 = £2.00 reclaimable VAT for this trip.

If Sarah drives 1,500 business miles in a month, her VAT calculation would be:

1,500 miles × £0.15 = £225 (total fuel cost).

£225 ÷ 6 = £37.50 reclaimable VAT. 

At the end of the quarter, Sarah includes her VAT mileage claim in her VAT return.  

Are you looking to claim VAT on mileage?

If you need help claiming VAT on mileage or with any other aspect of your travel expenses, book a demo today to see how we can help.