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 managing employee reimbursements, 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 2026:  

Meal subsistence rates in the UK

Note: The maximum of £25 in any 24-hour period covers all meals (£5 + £5 + £15). These rates are unchanged from 2025/26. 

Accommodation rates in the UK

HMRC does not publish standard benchmark scale rates for domestic overnight accommodation in the same way it does for meals. In other words, there is no single national overnight rate. Employers typically reimburse actual receipted hotel costs or agree bespoke rates with HMRC. The table below reflects broadly accepted guidelines used by many organisations: 

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 2026: 

HMRC’s AMAP rates have been frozen since 2011. In March 2026, MPs debated the issue in the House of Commons following a petition with over 41,500 signatures, noting the true cost of running a vehicle is closer to 67p per mile. The Chancellor acknowledged that motoring costs have evolved and stated the Government would consider the matter at a future fiscal event—so a rate review may be on the horizon.

You can also pay an additional 5p per mile per passenger (tax-free) if employees carpool for work purposes.

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 2026: 

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 through reliable expense tracking and reporting systems.

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). 

Here’s a table breaking down everything you need to know:

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 2026/27). 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 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 Capture Expense can help.  

When you take that first step into the world of UK taxes and National Insurance contributions (NICs), you might come across various terms that can seem confusing at first.  
 
One such term is “Class 1A NICs”. Understanding what these are, when they apply, and how they impact you or your business is crucial for maintaining compliance with HMRC.  
 
But don’t worry, we’ve done all the heavy lifting for you. Here’s what you need to know about Class 1A NICs. 

What are National Insurance Contributions (NICs)?

Let’s take a step back for a second. For those who aren’t entirely familiar with what NICs are: 
 
National Insurance contributions are payments made by both employees and employers in the UK to fund certain state benefits, including the state pension and various social security benefits. NICs are similar to social security contributions in other countries.

What are the different National Insurance (NI) classes?

Let’s take a look at the various classes of National Insurance for employees and employers: 

• Class 1 NI: applies to employees who earn more than £242 per week and are under the state pension age. It’s automatically deducted by the employer.  
• Class 1A or 1B: are paid by employers on their employee’s expenses and benefits.  
• Class 3: are voluntary contributions an individual can make to make sure their NI record has no gaps.  
• Class 4 NI: contributions apply to self-employed people earning profits of more than £12,570 in a year.  

 It’s worth noting that self-employed professionals no longer have to pay Class 2 NI contributions, but they can still make voluntary contributions.  

What are Class 1A NICs?

Class 1A NICs are a specific type of National Insurance contribution paid by you (the employer). They’re due on most taxable benefits provided to your employees. These benefits are often referred to as benefits in kind and can include things like:

• Company cars 
• Private medical insurance 
• Non-cash vouchers 
• Beneficial loans 

You must pay Class 1A NICs for

• Directors and certain senior employees.  
• Regular employees.  
• Family members or household members of the above, who also receive benefits. 

The conditions for Class 1A NICs to apply 

• The benefit must not already incur a Class 1 NICs liability.  
• The benefit must be related to employment.  
• The benefit must be subject to Income Tax.  

It’s also worth mentioning that there’s an exemption for “smaller” benefits, such as taking an employee out for lunch, as long as the cost is £50 or less.

Under what circumstances are you exempt from paying Class 1A NICs?

You are exempt from paying Class 1A National Insurance contributions if: 

• Your employee receives a benefit in kind that’s non-taxable (such as employer-provided pension schemes) 
• The recipient does not qualify as an “employed earner.” 
• The benefit is covered by a PAYE settlement agreement. 

When are Class 1A NICs due?

Class 1A NICs are due once a year, after the end of the tax year. You must pay these contributions by the 22nd of July (or 19th of July if paying by post). 

It’s also worth noting that from April 2027, the payrolling of BIKs will become mandatory–removing the need for you to complete annual P11D forms. For more information on how this will impact you read Payrolling of BIKs to Become Mandatory from 2027: What you Need to Know 

How are Class 1A NICs calculated?

The amount of Class 1A NICs you need to pay is calculated based on the value of the taxable benefits provided to your employees.  
 
For the tax year 2026/2027, the rate is 15%. For example, if the total value of the benefits you provided is £10,000, your Class 1A NICs would be £1,500 (15% of £10,000). 

Reporting and paying Class 1A NICs

To report and pay Class 1A NICs, you must:

1. Calculate the total value of all taxable benefits provided to your employees during the tax year. 
2. Complete a P11D(b) form: this form summarises the amount of Class 1A NICs due. It must be submitted to HMRC by 6th July following the end of the tax year. 
3. Pay the Class 1A NICs: make sure the payment is made by the deadlines mentioned above. 

Can your payroll software handle taxable benefits?

If you’re looking to quickly and efficiently manage all your employees’ taxable benefits book a personalised demo today with our sister company Cintra.  

It doesn’t matter how big your company is or how many employees you have, if you provide company-owned vehicles for personal use, you must stay informed about car fuel benefits.

We will give you everything you need to know from what the car fuel benefit is, to the 2025/26 rates and how to report car fuel benefit to HMRC.

Fasten your seatbelts and let’s get started. 

First things first, what is a car fuel benefit?

To put is simply, the car fuel benefit is applicable to UK taxpayers who use their company car for personal use and don’t pay for the fuel themselves. 
 
It’s also worth noting that normal commuting is classed as personal use for company car fuel benefit purposes. 

What are the company cars and vans rates for 2025/26? 

In the Autumn Statement 2024, the government announced an increase in the van benefit charge, as well as the car and van fuel benefit charges.  

Here are the 2025/26 rates: 

What are HMRC’s advisory fuel rates for company cars in 2025?

Here are the advisory fuel rates set by HMRC for company cars, starting from 1 March 2025: 

Diesel 

 Petrol 

 Electric

 Hybrid

For advisory fuel rates, hybrid cars are considered either petrol or diesel vehicles. 

Do HMRC regularly update their fuel rates? 

HMRC updates the advisory fuel rates quarterly to account for fluctuations in fuel costs. These updates occur on the following dates:

• 1 March 
• 1 June 
• 1 September 
• 1 December 

How to report car fuel benefits to HMRC 

Your reporting options

1. P11D Form:

Submit this form at the end of the tax year, along with other benefits.

2. Payroll:

Process the car fuel benefit through payroll, deducting tax in real time.

Important update

From 2026, payrolling benefits will become mandatory.  
 
This means that if you are currently using P11D forms you should consider switching to payroll processing now to stay ahead of the change. 

Tax and Class 1A National Insurance Contributions on car fuel benefits

Your people must pay tax on any car fuel benefit they receive. The taxable value is calculated using HMRC’s appropriate percentage, which considers the car’s CO2 emissions. Cars with lower emissions are assigned a lower percentage, whereas those with higher emissions receive a higher percentage, varying from 3% to 37%. 
 
Your company also has contributions to make. You’ll need to pay Class 1A National Insurance Contributions on the value of the car fuel benefit provided to your people. 

What method is used to calculate the fuel rates? 

Here’s a brief explanation of how HMRC calculates their fuel rates: 

1. Mean MPG calculation: HMRC starts by determining the mean miles per gallon (MPG) based on manufacturers’ data. This figure is adjusted to reflect the distribution of specific models sold to businesses.
    
2. Applied MPG adjustment: the mean MPG is then reduced by 15% to account for real-world driving conditions, recognising that actual fuel efficiency is often lower.
    
3. Fuel price data: HMRC sources the petrol prices from the Department for Business, Energy, and Industrial Strategy, while LPG prices are taken from the Automobile Association website.
    
4. Rate calculation: using the adjusted MPG and current fuel prices, HMRC calculates the advisory fuel rates.
    

By doing all this, HMRC ensures that the advisory fuel rates are accurate and reflective of real driving conditions and fuel costs. Here is the calculation breakdown: 

Diesel 

 Petrol 

 LPG 

 FAQs

Is it worth taking a company car?

Whether an employee should use a company car hinges on how much they drive and spend on fuel. If they rack up a lot of miles and their fuel costs exceed the car’s fuel benefit, it’s a good deal. However, if their fuel expenses are low, they could actually end up paying more with the benefit. 

Choose Capture Expense and manage your company cars and fuel with ease 

Want to see first-hand how our platform streamlines calculations and reimbursements, all while ensuring compliance with HMRC’s advisory fuel rates. Book a personalised demo today; from tracking every mile travelled to controlling spend with business expense cards.

Many employees regularly find themselves on the move, whether it’s visiting clients, attending meetings, or simply commuting to different offices.  
 
With such mobility comes the inevitable cost of transportation, and for many, mileage reimbursement becomes a vital aspect of their employment benefits.  
 
But how does mileage reimbursement work in the UK, you may ask? Read on to find out.

What exactly is mileage reimbursement?

Mileage reimbursement is a way to pay back your employees for using their own cars for work. It covers things like fuel, maintenance, insurance, and general wear and tear. Basically, it’s a way to help with the costs they run up while driving for work.

How does mileage reimbursement work? 

In the UK, mileage reimbursement is often based on a predetermined rate per mile travelled. This rate is set by HM Revenue and Customs (HMRC), and it’s designed to cover the average cost of using a personal vehicle, including fuel, maintenance, and depreciation.
 

The HMRC-approved mileage rates for 2025 for cars are as follows:

• 45 pence per mile for the first 10,000 miles in a tax year 

• 25 pence per mile for each additional mile over 10,000

For motorcycles, the rate is 24 pence per mile, and for bicycles, it’s 20 pence per mile.

These rates are subject to change, so it’s essential that you keep up with the latest guidance from HMRC.

How to calculate mileage reimbursement

To calculate mileage reimbursement, your employees need to multiply the number of miles travelled for work by the applicable rate per mile.  
 
For example, if your employee drives 100 miles for work in a given month, they would be entitled to £45 in reimbursement (100 miles x 0.45 pence). 

How to reimburse your employees

You can pay back employees either through your payroll system or via direct payments.

When using payroll, you incorporate the mileage reimbursement into the employee’s regular pay cycle, ensuring it is clearly itemised on their payslip.

Direct payments can be made outside of the payroll, typically via bank transfer or a company-issued cheque. 

Are there any tax implications?

Mileage reimbursement is typically tax-free, as it’s considered a reimbursement of expenses rather than income. However, there are exceptions, such as when the reimbursement exceeds the HMRC-approved rates or when an employee receives a cash allowance in lieu of reimbursement. In such cases, the excess amount may be subject to income tax and National Insurance contributions.

What responsibilities do you have?

You have a responsibility to ensure that your mileage reimbursement policies comply with HMRC regulations.  
 
This includes: 
 
– Using the approved mileage rates 
– Maintaining accurate records 
– Providing clear guidance to your employees.  
 
Failure to do so can result in penalties and legal liabilities. 

FAQs

Are all UK employees eligible for mileage reimbursement?

Not everyone is eligible for mileage reimbursement in the UK. Generally, you must meet the following criteria:

• You must be using your own vehicle for work-related travel. 

• Your employer must require you to travel for business purposes. 

• You must keep accurate records of your mileage, including the date, destination, and purpose of each trip.

Employees who are eligible for mileage reimbursement typically include sales representatives, delivery drivers, and those who travel between different work locations as part of their job. 

What do UK employees have to do to claim mileage reimbursement?

If you’re eligible for mileage reimbursement, you’ll need to keep detailed records of your business mileage. This includes maintaining a mileage log or using a mileage tracking app to record each journey you make for work purposes. Your mileage log should include the following information:

• Date of the journey 

• Starting location and destination 

• Purpose of the trip 

• Number of miles travelled

Once you’ve accumulated business mileage, you can submit a mileage claim to your employer. This typically involves completing a mileage expense form and attaching your mileage log as evidence. Your employer will then process your claim and reimburse you for the approved mileage. 

Accurate mileage claims guaranteed with Capture Expense

With Capture Expense, your team can raise, submit, and approve vehicle expenses anytime, anywhere, streamlining the way your organisation manages spend. Book your personalised demo now and never miscalculate mileage claims again! 

Filing your VAT return can be a complex process—especially if you’re new to VAT or unsure about the VAT return deadlines.  

VAT returns are due one month and 7 days after the end of each accounting period. For quarterly filers in 2026, deadlines fall on 7 May, 7 August, 7 November 2026, and 7 February 2027.

To make things simple, we’ll walk you through what a VAT return is, the VAT return deadlines, and a step-by-step guide on how to do a VAT return. 

What’s a VAT return?

A VAT return is a document that businesses submit to HM Revenue and Customs (HMRC) to report the value-added tax (VAT) they have charged on sales (output tax) and the VAT they have paid on business purchases (input tax).  

It typically covers a specific accounting period, either quarterly or annually, and allows the business to calculate how much VAT it owes or can reclaim.  

Businesses must file VAT returns even if no VAT is due, and they must do so on time to avoid penalties or interest charges. If you have a taxable turnover above £90,000 must register for VAT. Once registered, Making Tax Digital (MTD) is HMRC’s requirement that all VAT-registered businesses maintain digital records and submit returns using HMRC-compatible software

What to include in your VAT return

When you file your VAT return, you’ll need to include:

• Your total sales and purchases. 
• The amount of VAT you owe. 
• The amount of VAT you can reclaim. 
• The amount of VAT you’re owed from HMRC (if you’re reclaiming VAT on business expenses) 

What are the VAT return deadlines?

Here are the quarterly VAT return deadlines for 2026: 

Under the Making Tax Digital (MTD) regulations set by HMRC, all VAT returns must be filed digitally using MTD-compatible software. 

What are the penalties for late VAT submissions and payments?

Penalties for submitting your VAT return late 

If you submit your VAT return late, HMRC has a penalty system based on points. Each time you’re late, you get a penalty point. But a single point alone won’t lead to an immediate fine. 

However, once you hit a certain number of points—called the penalty threshold—you’ll get a fine of £200. After that, every additional late submission will cost you another £200. 

The number of points you’re allowed before getting fined depends on how often you file your VAT return.

Here’s the penalty point threshold for your accounting period:

• Annual submissions → 2 points 
• Quarterly submissions → 4 points 
• Monthly submissions → 5 points 

Penalties for late VAT payments 

If you miss a VAT payment, HMRC has a separate penalty system that works on percentages rather than fixed fines. The longer you take to pay, the more it costs you.

Here’s how it works: 

How to do a VAT return

Here’s a step-by-step guide on how to do a VAT return: 

Step 1. Know your VAT scheme 

Before you start, it’s important to know which VAT scheme your business falls under. HMRC offers different schemes depending on your turnover and how you prefer to manage your VAT.

Step 2. Get your documents ready

To avoid last-minute scrambling, make sure you have all the documentation you need: 

• Sales invoices (to calculate VAT collected from customers). 
• Purchase invoices (to work out the VAT you can reclaim). 
• Receipts for business expenses. 
• Records of zero-rated or VAT-exempt sales (if applicable). 

Step 3. Work out how much VAT you owe or can reclaim 

Now, it’s time to crunch the numbers. You’ll need to calculate: 

• VAT on sales (output VAT): the total VAT you’ve charged customers. 
• VAT on purchases (input VAT): the VAT you’ve paid on business-related expenses. 

If your output VAT is higher than your input VAT, you’ll need to pay the difference to HMRC. However, if your input VAT is greater than your output VAT, you can claim a refund for the excess amount. 

Step 4. Use Making Tax Digital software 

Since April 2022, all VAT-registered businesses, regardless of turnover, must submit returns using MTD-compliant software.  

Here are some popular MTD-compatible software: 

• Sage 
• Xero 
• QuickBooks 

Make sure that y choose MTD-compatible software that connects directly to your HMRC account and auto-populates VAT return boxes.

Step 5. Submit your VAT return 

Once you’ve checked everything, it’s time to file your VAT return.  

Here’s how: 

1️. Log in to your HMRC-approved MTD software.
2️. Link it to your HMRC account (if you haven’t already).
3️. Go to the VAT returns section.
4️. Enter your figures (manually or let your software pull them through).
5️. Review everything carefully (remember mistakes can lead to penalties).
6️. Submit your VAT return and save the confirmation for your records. 

Step 6. Pay your VAT or get a refund 

Once your VAT return is submitted, you’ll either need to pay HMRC or wait for a refund. 

• To pay: you can use a direct debit, bank transfer, or debit/credit card. Make sure you pay by the deadline to avoid penalties. 
• To claim a refund: if you’ve paid more VAT than you owe, HMRC will typically process refunds within 10 working days (as long as there are no issues). 

Never miss VAT return deadlines with Capture Expense 

Capture Expense helps you stay on top of VAT return deadlines by providing auditable reports that give you a clear record of all your transactions—including VAT returns. Book a demo today to see how it works. 

Worried about getting your VAT payments wrong? You’re not alone. But with the right information, it’s easier than you might think. 

Let’s break down the UK VAT rates, what is the vat threshold, and how to calculate exactly what you owe HMRC. 

What are the VAT rates in the UK? 

Here are the current VAT rates in the UK for 2024/2025: 

What goods and services fall under the standard UK VAT rate?

Here’s a list of goods and services that fall under the standard UK VAT rate. For a more comprehensive list, including items that are exempt or outside the scope of VAT, you can visit HMRC. 

What is the vat threshold?

The VAT threshold refers to the minimum level of annual turnover a business must reach before it’s required to register for VAT.  

If a business’s taxable turnover exceeds this threshold, it must charge VAT on its sales and may also reclaim VAT on its purchases. 

What is the vat threshold for 2025? 

The VAT threshold in the UK for 2025 is £90,000. This has increased from £85,000 in April 2024.

Is the VAT threshold reviewed every year?

Yes, the VAT threshold is reviewed annually in the UK. In the past, it typically increased each year, but there was a notable pause from 2017 to 2024 when it stayed the same.

Here’s how the VAT threshold has changed from 2014 to 2025: 

How to calculate how much VAT you owe

Let’s imagine you’re the proud owner of Glow & Co, a VAT-registered business that sells handmade candles in the UK.  

You’ve had a great month, and now it’s time to figure out how much VAT you owe HMRC. 

Step 1: work out your VAT on sales (output VAT)

This is the VAT you’ve collected from customers.  

Let’s say your total sales for the month were £10,000, and you charge the standard VAT rate of 20%. 

VAT collected = £10,000 × 20% = £2,000 

Step 2: work out your VAT on purchases (input VAT)

You can reclaim VAT on your business expenses.  

This month, you bought wax, wicks, jars, and packaging materials for £2,500, and the VAT included in those costs was 20%. 

VAT paid = £2,500 × 20% = £500 

Step 3: calculate the VAT you owe

To find out how much you need to pay HMRC, subtract your input VAT from your output VAT:

£2,000 (VAT collected) – £500 (VAT paid) = £1,500

This means you owe £1,500 in VAT to HMRC for the month. 

Many businesses also manage these costs using a business expense card, making it easier to separate company spending from personal transactions and maintain accurate VAT records.

What if you paid more VAT than you collected? 

Let’s say in a quieter month you only made £3,000 in sales (£600 VAT collected) but had £4,000 in business expenses (£800 VAT paid).

£600 (VAT collected) – £800 (VAT paid) = -£200

In this case, HMRC would owe you £200, which you can reclaim as a VAT refund. 

Simplify and automate your business expenses with Capture Expense 

Our sophisticated app automatically applies the correct VAT rate while giving finance teams better spend tracking and control, keeping your records accurate and fully compliant with HMRC. Book a personalised demo today to see Capture Expense in action.